Grain markets are in the green, with wheat and durum prices closely watching frosty weather forecasts closely.
“There’s nothing you can’t prove if your outlook is only sufficiently limited.” – Dorothy Sayers (English author)
Wheat & Durum Prices Best & Worst COVID-19 Scenarios
Grain markets are mixed again with oilseeds and corn prices higher, but wheat and durum prices are watching frosty weather forecasts closely. Also impacting markets is positioning ahead of Tuesday’s May WASDE report and China buying U.S. soybean and corn, amidst the two countries trading barbs over the handling of COVID-19. A leaked report from a Chinese think tank suggests that anti-China sentiment around the world is the strongest it has been since the 1989 Tianamen Square crackdown.  Ironically, any online discussion within China about Tianamen is quickly censored/taken down, as was relevant information about COVID-19. 
A cold front is pushing into the Midwest today and expectations are that the coldest weather will show up on Saturday and Sunday morning.  With the below-freezing temperatures expected to stretch from central Illinois all the way up into Canada, there’ll be a lot of recently-planted corn, soybeans, and HRS wheat at risk. However, the market isn’t too concerned about HRS wheat though it seems, but moreso all the SRW wheat that has emerged and back in growth mode.
I’ll dig more into this and its impact on wheat prices as, today, we’re digging into what the best- and worst-case scenarios are for wheat and durum prices. I was going to include my expectations for barley and oats prices but this Breakfast Brief would’ve been double the current length! Thus, I’ll cover barley and oats prices in this coming Monday’s Breakfast Brief. Nonetheless, yesterday, we got an assist from StatsCan who finally put out their estimate of Plant 2020 acres and, as suspected, there are higher forecasts for oats and wheat, but less canola, soybeans, and barley. Surprisingly, StatsCan thinks that acres planted with pulses (namely peas and lentils) will also trend lower for Plant 2020.
Just a heads up that, because we are going in-depth on a few different crops, there are the largest number of charts I’ve ever put in a Breakfast Brief. If you’re looking for my COVID-19 outlooks for corn prices, I covered that on Monday. Further, I looked at the best- and worst-case scenarios for canola and soybean prices on Wednesday. And last Friday, I shared some of my expectations for chickpea, pea, and lentil prices.
Wheat Prices: Best & Worst COVID-19 Cases
There is one major bearish factor hanging over wheat prices and it’s expectations of another near-record crop. This, combined with the carryover of stocks from the 2019/20 crop year to 2020/21, is a bearish cloud that’s hard to ignore. However, while this fundamental supply factor is important to note, as I mentioned the other week, grain markets may be in a tough position to weather the storm of food hoarding as 60% of total grain supply is held by countries who don’t actually export and have inadequate storage facilities.
Specific to wheat trade, we already know that governments in the Black Sea have no problem keep a lid on how much wheat their countries can export. Russia and Ukraine have already put wheat exports quotas in place to end the 2019/20 crop year, mainly to ensure adequate domestic supply and prevent a run-up in domestic wheat prices. This obviously opens the door for wheat exports from the U.S., Canada, Australia, and Europe to take advantage.
In fact, I think wheat exports quotas have already helped find U.S. wheat exports find more business, with winter wheat shipments up 20% year-over-year to nearly 8.5 MMT sailed (or nearly 311M bushels if converting metric tonnes into bushels). Similarly, shipments of all types of wheat exports are tracking about 5% above last year with 22.4 MMT sailed.
That said, we know that Australia will not have a lot of wheat carried over from 2019/20 to 2020/21, but they are expected to see production jump 50% year-over-year to 23 MMT, thanks to good rain over the last few months and expectations acres will increase by about 20% to 29.9M acres. Further, while spring wheat acres in Canada are expected to stay flat year-over-year, it’s still an 11% jump from the 5-year average. The bigger jump in Canada though is remaining winter wheat acres – pegged yesterday by StatsCan at 1.43M – is a 54% improvement year-over-year.
That said, Germany is set to deal with its 3rd straight summer of drought.  The combination of practically no rain since mid-March, and the warmest December-to-February on record for Europe, soil moisture reserves are fairly limited. This all adds up to reduced wheat production expectations for the EU. On the flipside, the U.S. winter wheat crop is in “tough shape” according to growers across the Southern Plains.  It’s unlikely, however, that we’ll see a major production drop by the USDA in their May WASDE report next Tuesday.
Ultimately, my thinking here is that wheat prices could find higher values through the rest of 2020 and 2021. While new crop prices are below current spot wheat prices, compared to the same time a year ago, wheat prices are actually looking pretty good. But again, I think demand for simple food staples (i.e. flour, bread, crackers, etc.) is a positive for wheat prices as long as the food service industry isn’t operating at 100%. Putting it differently, after COVID-19 lockdowns, there’ll be less restaurants to go to and/or remaining restaurants won’t be able to operate at 100% capacity due to social distancing regulations. While Mother Nature will have the final say, wheat prices seems to have slightly more upside potential over the next year, than downside risk.
Durum Prices: Best & Worst COVID-19 Cases
While the outlook for wheat prices looks positive, it’s not as bright for durum prices. Currently, average durum prices across the Canadian Prairies continue to sit around $8 CAD/bu. That said, I’ve seen a few more trades on our Combyne marketplace between $8.50 and $8.90/bushel in southern regions of Western Canada. These are the best prices we’ve seen since August 2017 so if you’ve got some carryover from Harvest 2019 or even Harvest 2018, get it a new Listing on Combyne posted. That said, new crop durum prices are also performing much better than a year ago, so nothing wrong with Listing some new crop too!
Part of the reason for the improvement in durum prices has been strong durum exports. U.S. durum exports in 2019/20 have nearly doubled what they saw at this point back in the 2018/19 crop year, with over 850,000 MT now sailed. The bigger question though that many analysts are asking if U.S. farmers will plant more durum acres this year, despite the ongoing challenging environment for quality discounts and agronomic performance, at least relative to other spring wheat options.
Obviously, we saw the estimate from StatsCan yesterday that Canadian producers are expected to seed 5.23M acres of durum for Plant 2020, which would be a 7% bump from last year. Frankly though, with canola prices where they’re at, we might see some of those fields once planned with canola flip over to durum, oats, or even pulses like peas and lentils, given their current values. Further, planting one of these crops is not as great of a risk to the balance sheet as canola is. Put simply, many might be thinking like me: this is not a year to gamble on potential high rewards (especially as long as trade tensions with China remain).
Nonetheless, Agriculture Canada still thinks that demand for durum will remain strong in 2020/21, as they’re estimating nearly 5 MMT in exports. That said, with one calendar quarter left in the 2019/20 crop year, Canadian durum exports are tracking 20% higher than year ago with 3.8 MMT sailed. Interestingly, fresh data from the Canadian Grain Commission indicates that Turkey – and not Italy, Morocco, or the U.S. – has been the largest buyer of Canadian durum through February 2020.  At 824,400 MT sailed, that’s 5 times more what was sailed to Turkey over the same 7 months of the 2018/19 crop year!
Ultimately, through to January 2021, I think that new crop durum prices have the potentially to start trending higher to where current old crop prices are today. Of course, this is not a guarantee and given some of the new crop durum prices available today – at least relative to a year ago, it would be naïve to not considering getting to at least 20% – 25% sold. Much like wheat prices being influenced by stronger consumer demand for food staples, durum prices could be supported by higher demand for things like pasta and pizza (and I’m not just biasing this on the fact that I’ve ordered a few pizza pies over the last 2 months in lockdown!).
Have a great weekend!
At 8:35 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3943 CAD, $1 CAD = $0.7172 USD)
July Corn: +3¢ (+0.95%) at $3.20 USD or $4.462 CAD
July Soybeans: +7.3¢ (+0.85%) to $8.515 USD or $11.873 CAD
July Soybean Meal (per short ton): +$1.90 (+0.65%) to $290 USD or $404.35 CAD
July Soybean Oil (cents per lbs): +0.34¢ (+1.3%) to 26.60¢ USD or 37.09¢ CAD
July Oats: +0.3¢ (+0.1%) to $2.99 USD or $4.169 CAD
July Wheat (Chicago): +1.3¢ (+0.25%) to $5.29 USD or $7.376 CAD
July Wheat (Kansas City): +3.8¢ (+0.8%) at $4.825 USD or $6.728 CAD
July Wheat (Minneapolis): +2.5¢ (+0.5%) to $5.135 USD or $7.16 CAD
July Canola: +2.7¢ (+0.25%) to $10.528/bu / $464.20/MT CAD or $7.551/bu / $332.02/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.