The slower movement of grain this year in Western Canada draws comparisons to 2013/14. What did spring wheat prices do then?
We covered the transportation issue of Canadian grain a few weeks ago, with special mention of how oil movement has increased while grain has dropped.
It’s clear that grain transportation by rail, as well as grain handling capacity, are scoring very poor again this year. Therefore, we wanted to assess whether 2017/18’s outcome is going to be as bad as the 2013/14’s transportation issue.
Using that crop year as a benchmark, here’s a review of where we could see things heading in the next few months as relates to spring wheat.
First though, a refresher.
A bumper harvest filled Western Canada’s grain handling system to the brink in fall 2013.
Temperatures were bloody cold, trains were not moving whatsoever, and producers were left with very few marketing options over the winter of the 2013/14 crop year.
On one hand, farmers were unable to deliver their crop. On the other hand, they were dealing with depressed prices and very weak basis levels as commercials were simply signaling that they did not want to buy their grain.
Finally, in March 2014, the Canadian government intervened by imposing regulation on railroad companies. In particular, they asked the railroads to allocate a certain number of railcars to ship grains so that the backlog could be cleared.
Thus, we figured it would be interesting to look at export volumes from this time back in the 2013/14 crop year, to where we’re at today. We’re specifically looking at the previous 6 weeks, as well as the next 6 weeks. We then are comparing this against Ag Canada’s forecast for full-year export numbers.
Where the data is available, we also looked the basis levels or cash prices of the crops, again comparing things today to where they were in 2013/14 (and where they went from March 2014 onward).
So what does it look like?!?!
Let’s first look at total grain exports.
As the first chart below shows, from week 25 (basically the end of January) to week 31 (the beginning of March), total Canadian grain exports are sitting at 24.8 million tonnes. tracking a bit behind the 3-year average. Further, they are ahead of the 2013/14 pace of all Canadian grain exports.
Thus far in 2017/18, according to CGC, year-to-date volumes of all exported grains are at 24.8 million tonnes. This basically matches the 3-year average but is in fact nearly 16% (or roughly 3.3 million MT) higher than the same period in 2013/14.
What is likely going to happen as we roll through the next 6 weeks?
Well, the ideal situation is that Canada’s grain handling system will run at a very fast pace to achieve Ag Canada’s export target. To meet the 46.2 million tonnes of total Canadian grain exports forecasted for the 2017/18 crop year though, the pace of exports will have to nearly double!
Quite simply, this would mean that Canadian total grain exports would have to jump to more than 1 million tonnes, from the 600,000 tonnes or so that’s been shipped out weekly right now.
Looking at Canadian wheat exports (not including durum), we’ve seen 9.1 million tonnes getting shipped out of country thus far in the 2017/18 crop year.
Going into week 32, Canadian non-durum wheat exports are actually tracking a bit behind the 2013/14 pace. To be completely frank, it’s becoming obvious that Canadian wheat exports have been running out of steam in the past couple of weeks.
The last 6 six weeks, Canadian non-durum wheat exports have been averaging around 280,000 tonnes.
Right now, Ag Canada is forecasting that total Canadian non-durum wheat exports will hit 17.2 million tonnes for the 2017/18 crop year.
For that target to be met, we’ll need to see almost 400,000 tonnes shipped each week for the next 5 months!
Let’s look at spring wheat prices now.
For simplicity and visual purposes, we used Manitoba Agriculture’s dataset of Western Red Spring Wheat prices (content of protein not specified). Specifically, we wanted to look at basis values.
As our third chart shows, spring wheat basis levels widened significantly in 2013/14. Remember? No one wanted to buy your product without a steep discount attached to it!
However, once grain movement started to improve in the spring and summer months, spring wheat basis levels started to narrow significantly, even going positive for a brief moment in fall 2014!
More recently, we’ve seen spring wheat basis levels widen again to below the 3-year average. Every time we’ve gotten near that three-year average, there seems to be farmer selling and prices dip.
To conclude, wheat exports have been trending lower with weaker rail movement, and basis has widened a bit.
While current basis levels are not as deep/negative as they were in 2013/14, we could certainly expect some improvement in the coming months.
That being said, we’ve seen some better bids for hard red spring wheat for summer movement, but we’re not antsy to make sales just yet.
You’re certainly welcome to post a lot of spring wheat on FarmLead though – all major grain buyers are constantly on the FarmLead Marketplace looking to fill up their programs, in addition to sometimes needing to replace contracts that don’t meet spec. Here are a few of their bids.