Nov 25 – 2020 Winter Wheat Crop Starts Poor (but So What?)

Grain markets this morning are mostly in the green, led by winter wheat on concerns of the 2020 crop and strong volumes of wheat exports.

“Discipline is the soul of an army. It makes small numbers formidable; procures success to the weak, and esteem to all.” – George Washington (1st U.S. President)

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2020 Winter Wheat Crop Starts Poor (but So What?)

Grain markets this morning are mostly in the green, led by winter wheat on concerns of the 2020 crop and strong volumes of wheat exports. Stronger winter wheat prices follows a strong performance on Friday, whereas the rest of the complex faltered. As this is a holiday-shortened trading week due to U.S. Thanksgiving and it’s the last trading week of the month, any major headline – i.e. a weather issue or a trade war update – will get a little more attention, likely adding to some volatility.

Where do Wheat Quality and Feed Barley Prices Go?

Euronext is planning to launch future contracts in 2020 for feed barley and durum. [1] The difference with these contracts though will be that the contracts will be cash-settled, meaning that, instead of delivery coinciding with the expiry of the futures, the benchmark will be derived from the cash markets. That said, Euronext is still looking for a partner to provide those cash benchmarks for EU feed barley and durum prices.

Coming back to North America, feed barley prices have found some strength in recent weeks, thanks to continued livestock demand and stronger export activity. [2] Worth mentioning is that U.S. feedlot numbers and animals being delivered to market are both up 1% year-over-year. [3] That said, the consistency of Canadian barley exports hasn’t been healthy enough for me to say that it’s a trend. So far though through Week, Canadian barley exports are tracking 5% behind last year with just 502,000 MT shipped out and you can tell of some of the see-saw nature to the activity.

Canadian 2019/20 barley exports are tracking 5% behind last year's pace through Week 15

On the wheat side of things, 77% of the Canadian hard red spring wheat crop is pegged at either a #1 or #2 quality, according to the assessment of samples received by the Canadian Grain Commission. [4] Conversely, a little more than 50% of durum is expected to be a #1 or #2 grade, with another 28% finding the #3 category, which will most certainly be blended off with both good quality durum from last year and this year. That being said, mildew, low test weights, fusarium, and sprouting issues were all higher than average.

2020 Winter Wheat Crop Starts Poorly

In last Wednesday’s FarmLead Breakfast Brief we talked about the performance of this current crop year’s wheat exports but Strategie Grains is already looking to next year. The European analytical firm recently lowered its forecast for next year’s harvested area in the EU, due to heavy rains this fall in western countries. [5] The firm is expecting about 58.56M acres to combined next year, down about 500,000 acres from their first estimate and 250,000 from the 2019 area harvested.

Add it all up and the 2020 soft wheat harvest in the EU could total 142.3 MMT, down more than 2% or 3.2 MMT from the 145.5 MMT 2019 wheat harvest. For barley, 2020 expectations from Strategie Grains is that 29.65M acres of would be harvested, down about 500,000 acres year-over-year. Based on average yields, this should result in a 2020 EU barley harvest of 59.6 MMT of production, down about 3% or 2 MMT, year-over-year.

Back here in North America, cool temperatures and drier conditions in the U.S. Southern Plains haven’t helped the 2020 U.S. winter wheat crop get a good start. [6] The USDA said in Monday’s crop progress report that 47% of Kansas’ winter wheat is in good-to-excellent (G/E) condition, down 4 points week-over-week but still 4 points better than the 43% G/E rating the state received a year ago at this time. Texas is starting to see some drought conditions appear, which correlates with the 30% G/E rating its winter wheat has, down 6 points on the week and well behind 56% G/E a year ago.

Aggregately, average U.S. winter wheat conditions were at 56% G/E, technically up 2 points on the week and 3 points better than this time a year ago. Expectations are that this week’s crop progress report, out from the USDA today at 3PM EST, will show weaker ratings again in the Southern Plains though. There is some talk out there that the 2020 SRW wheat crop will be smaller, mainly because of the late corn and soybean harvest limiting acres that could get seeded this fall.

Similarly, Russia and Ukraine are facing some mixed conditions as their winter wheat fields ready themselves for winter. [7] While not a huge bullish headline at this point, analysts are suggesting that emergence and germination aren’t that great but there was enough moisture to get the crop going at least.

Overall, while it’s easy to get bullish on the world’s 2020 winter wheat crop, it’s way too early to be definitive. Instead, I would again point to current U.S. winter wheat exports as more of the reason for recent strong performance of winter wheat futures, which was the only crop (as shown in the table at the beginning of today’s FarmLead Breakfast Brief) that found positive gains last week. [8] After all, total U.S. wheat exports are tracking 25% higher year-over-year (albeit more in line with the five-year average) with 11.7 MMT sailed through Week 24.

Total 2019/20 U.S. wheat exports - including winter wheat - are tracking 25% higher through 24

To growth,

Brennan Turner
CEO
FarmLead
TF: 1-855-332-7653
contact@FarmLead.com
@FarmLead on Twitter

At 7:25 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3309 
CAD, $1 CAD = $0.7514 USD)

Mar Corn: +1.8¢ (+0.45%) to $3.803 USD or $5.061 CAD
Jan Soybeans: +2.8¢ (+0.3) to $8.998 USD or $11.975 CAD
Jan Soybean Meal (per short ton): +$0.40 (+0.15%) to $301.60 USD or $401.41 CAD
Jan Soybean Oil (cents per lbs): -0.05¢ (-0.25%) to 30.98¢ USD or 41.23¢ CAD  
Mar Oats: +0.5¢ (+0.15%) to $3.18 USD or $4.232 CAD
Mar Wheat (Chicago): +7.8¢ (+1.5%) to $5.265 USD or $7.007 CAD
Mar Wheat (Kansas City): +5.3¢ (+1.2%) at $4.385 USD or $5.836 CAD 

Mar Wheat (Minneapolis): +2.8¢ (+0.55%) to $5.095 USD or $6.781 CAD
Jan Canola: -0.5¢ (-0.05%) to $10.526/bu / $464.10/MT CAD or $7.908/bu / $348.70/MT USD

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECIPIENTS OF THIS POST. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

About the Author
Brennan Turner

Brennan Turner is the CEO of FarmLead.com, North America’s Grain Marketplace. He holds a degree in economics from Yale University and spent time on Wall Street in commodity trade and analysis before starting FarmLead. In 2017, Brennan was named to Fast Company’s List of Most Creative People in Business and, in 2018, a Henry Crown Fellow. He is originally from Foam Lake, Saskatchewan where his family started farming the land nearly 100 years ago (and still do to this day!). Brennan's unique grain markets analysis can be found in everything from small-town print newspapers to large media outlets such as Bloomberg and Reuters.

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