Market Insider

Wheat Rebounds on Terrible U.S. Winter Wheat

One week after the USDA acreage and stocks reports put a bearish mood on grain markets, the bulls re-emerged this past week, recouping the losses seen in the last week of March, and then some. Leading the way was the wheat complex, which was propelled higher after the first official USDA crop progress report of the 2022/23 crop year showed the market that the U.S. winter wheat crop is one of the worst in history.

Also published last week was the April WASDE report, released by the USDA on Friday, April 8th, but it was a bit of a snoozefest with no major changes. The corn balance sheet was relatively unchanged, while U.S soybean stocks were lowered on increased seed use and exports. Adding to the bullish soybean buzz was the Brazilian soybean harvest lowered by another 2 MMT to 125 MMT, as well frost concerns in Argentina affecting the crop there. For the wheat complex, U.S. ending stocks were raised by 25M bushels (or 680,000 MT) on weaker-than-expected exports, while global ending stocks for the 2021/22 crop year were also raised slightly.

The story of the week for wheat though, was the USDA’s crop progress report, which showed just 30% of the U.S. winter wheat crop in good-to-excellent (G/E) condition. This was well below the average pre-report guesstimate of 40%, and behind last year’s conditions of 53%. Compared to other drought-stricken years, this year’s first crop progress report is closest to 1996’s 27% G/E rating, and 2018’s 31%. In the latter year, April 2018 saw some good rains that helped yields improve, albeit were still quite poor (47.9 bu/ac), but April 1996 didn’t get much moisture and average yields were terrible (37.1 bu/ac).

As mentioned (and shown in maps) in last week’s Wheat Market Insider column, the outlook for the U.S. winter wheat area – namely the U.S. Southern Plains – suggest above-average temperatures and below-average precipitation. There’s optimism that lower yields could offset by the largest area of winter wheat acres in six years, but with dry conditions, protein would be elevated. Additionally, there’ll be a lot more attention put on the spring wheat crop, whose U.S. acreage is forecasted to be the lowest in five years.

On the flipside, Russian wheat conditions look pretty good, with just 3% of the crop in poor condition, fairly close to what we saw in 2017 when the country harvested a record wheat crop. Currently, SovEcon is forecasting 87.4 MMT, but there is some buzz that 90 MMT is obtainable if the right conditions are seen this spring. Despite a lot of the world refusing to do business with Russia, there’s still more than a few countries who need wheat and so a bigger Russian wheat harvest could still put some bearish pressure on global wheat prices.

Speaking of wheat prices, new crop values in Western Canada continue to trickle higher as the importance of this year’s harvest continues to receive more attention and buyers look to secure supplies. Of note is that basis levels for new crop CPS wheat contracts in Western Canada has been steadily rising since hitting a low of -34¢ CAD/bushel a month ago, but still only accounts for about 8% of the cash price, behind the near 13% seen in early February. Quite clearly though, with Canadian CPS / low-protein wheat prices tracking the U.S. winter wheat market, they have been the best performer of the wheat complex since the start of the 2022 calendar year.

New crop HRS wheat prices in Western Canada have rallied about 25% since the start of the year, with basis levels climbing about 38¢ CAD/bushel in that timeframe to account for more than 12% of the cash price (near the highs of the year). At $12.56 CAD/bushel though, this is the highest new crop, cash HRS wheat prices have ever been, but probably have some room to run higher as planting season weather premiums start to creep in (as they usually do in May).

Similarly, new crop durum prices are quite elevated, and are the best since August last year, when the smaller harvest was just starting to be understood before rallying significantly into September. However, new crop durum prices could soften in the coming weeks if European crop conditions show promise, but the market continues to be very aware of the dry conditions in western Saskatchewan and most of central and southern Alberta (and as shown below in AAFC’s map from this past week). The only area that may not want rain is the Red River Valley in Manitoba / North Dakota, which after a winter of heavy snow, could see some flooding and therefore, a late start to their Plant 2022 campaign (as well as less spring wheat acres than planned). Needless to say, the majority of North American wheat growing areas could certainly use some moisture before the spring planting campaign hits full tilt in a few weeks.

To growth,

Brennan Turner

Founder | Combyne