As we turn the calendar on 2018 wheat prices and markets, it’s a time of reflection, but also one of planning. That being said, as a company, FarmLead is also reflecting on 2018 and planning for 2019 with some new products and tools! We’d love for you to have some input in the evolution of FarmLead (including some early access to try out some new tools) and so, before continuing your reading, please answer this 4-question survey. Thanks!
A Recap of 2018 Wheat Prices, Market Recap
As 2018 nears an end, we here at FarmLead would like to take a look back at would influenced wheat prices this past year and if can help us draw any clues for our 2019 wheat outlook. While wheat prices haven’t been as volatile as soybeans, performance has been actually pretty decent.
Ahead of the (likely slow) holiday week of trading, front-month Chicago soft red winter wheat prices gained more than 20% for the year to make it the best-performing grain on the futures board in 2018.
For Kansas City hard red winter wheat prices, the performance wasn’t that far behind that of its Chicago neighbour, up 19% for the year.
Finally, Minneapolis hard red spring wheat prices were the anomaly of the wheat complex in 2018, tracking 9% lower year-over-year ahead of the holidays.
In a moment, we’ll dig into why hard red spring wheat prices acted like the red-headed step child for all wheat prices this year, but let’s first, take a look at the bigger picture within the wheat complex.
Wheat Prices Tempered By 2nd-Biggest Wheat Harvest
2018’s year of wheat production around the world was certainly smaller than last year’s record output, but not by much! Worldwide wheat production for the 2018/19 crop year is estimated by the USDA to have reached 733.4 MMT, down about 4% from last year’s record output of 763.06 MMT.
Russian wheat production came back down to reality with a 70-MMT harvest, down from last year’s monster/record crop of 85 MMT. Thanks to a drier growing season, the 2018/19 EU wheat harvest was also smaller, coming in at roughly 137.6 MMT according to the USDA (all other estimates are within about 1 MMT of the USDA’s estimate).
North American Wheat Production Surprises
U.S. wheat production was very strong in 2018, with 51.3 MMT harvested this year (or 1.884 billion bushels if converting metric tonnes into bushels), an increase of 8.5% year-over-year.
The increase was namely because of the rebound in hard red spring wheat harvest. Thanks to there not being a drought during the 2018 growing season (unlike 2017), U.S. hard red spring wheat production jump 52% year-over-year to 587.9 million bushels, or 16 MMT if converting bushels into metric tonnes).
Similarly, Canadian spring wheat production surprised most market participants (including yours truly), given how late this the 2018 harvest was. Specific to Canadian spring wheat production, production totaled 23.5 MMT on an average yield of 50.5 MMT
If we count all wheat (including durum ), total Canadian production in 2018 nearly topped 31.8 MMT. This is up 6% year-over-year and 1.3% better than the 5-year average of 31.4 MMT.
Ultimately, a look at wheat yields help confirm what the production numbers show: 2018 was worse than 2017, albeit not by much. Out of the major exporters, only the U.S. saw an increase in 2018 wheat yields compared to the 2017 growing season.
Australian Wheat Production Sizzles
We didn’t mention Australia because they saw one of the most troubling years of wheat production in recent memory.
Back in early December, we got the most recent estimates from Australia, which showed a crop well-below first expectations back in June. Specific to wheat, ABARES (the Australian USDA equivalent) pegged the 2018/19 harvest at just 17 MMT. This was down 2.1 MMT from their September estimate and nearly 5 MMT below the original estimate back in June.
This is one of the smallest wheat crops in Australia’s recent memory, down about 20% year-over-year and a third below the 5-year average. With this sort of relatively miniscule production (especially to years past), it’s clear that Australia just might not be able to export as much wheat as it has historically. This is significantly true for higher quality wheat what’s usually produced in eastern states. However, those states were the worst hit and so the ability for Australia to compete in the high-protein market this year might be tough.
We explicitly stated back in mid-November that one should watch spring wheat basis as Australia’s exportable wheat supplies of higher quality will likely run out in short order, and usual buyers – i.e. Asian millers – would soon have to start paying up for quality. In fact, the USDA said in its December WASDE report that Australia will only export 10.5 MMT of wheat this year. This would be a drop of 25%, or 3.5 MMT year-over-year and a window of opportunity for other high-protein wheat exporters to capture.
Russia Still the Wheat King
Argentina is one of the countries that might be able to capture some of this opportunity with a well-respected 19 MMT in the process of being combined right now. Unfortunately, recent rains have stalled some of the wheat harvest there, especially in northern regions. Country-wide, the wheat harvest is about 2/3s complete.
Combined with recent frosts though, we might see more production downgrades from the country. Currently, the USDA is expecting Argentina to export 14.2 MMT of wheat in the 2018/19 crop year, up more than 18% from last year’s 12 MMT.
Let’s get into the meat and potatoes though: in 2018, there have been plenty of articles pointing to the rise of Russian agriculture, notably their wheat production.  All the way back in September 2017, taking a more macro-trend approach, we here at FarmLead were already calling Russia the new wheat king.
Russia is said to be able to maintain its top wheat exporter in 2018/19, with the USDA’s most recent estimate of 36.5 MMT. While this is down nearly 5 MMT from 2017/18’s numbers, it’s still good enough for first place in the world.
Through last week, Russia has exported 22.6 MMT of wheat so far in their 2018/19 crop year that started July 1st. This is up 12% year-over-year, despite the fact that, as mentioned, exports are forecasted to be down 12% year-over-year.
This causes a problem for the Kremlin in terms of food prices starting to increase at home, which in turn could lead to domestic unrest. As such, before the holidays, exporters and Russian ag ministry officials met to align on wheat exports going forward. However, the conclusion from the meeting that there would be no restrictions for exports and they’ll re-review things in another meeting in February 2019.
Regardless, it seems that Russian wheat exports will need to slow significantly. As of December 1st, Russian on-farm wheat stocks are down 29% year-over-year. With Russian livestock feedstuff demand maintaining a pace similar to last year, it’s expected that the amount of exportable wheat supplies are quickly dwindling.
Protein Demand Helps Spring Wheat Prices?
The USDA is currently forecasting that the U.S. will export a total of 27.2 MMT of all types of wheat. This would be a jump of 11% year-over-over-year. However, through Week 28 of the American 2018/19 crop year, total wheat exports are tracking 9% lower compared to the same point in the 2017/18 crop year with just 11.2 MMT shipped out.
Specific to hard red spring wheat exports though, the USDA raised their estimate in the December WASDE to 8.2 MMT (or 301.3 million bushels), up 32% year-over-year.
Through week 28, American HRS wheat exports have totaled 3.48 MMT, up nearly 8% year-over-year.
Across the 49th parallel, the USDA is currently estimating total Canadian wheat exports in the 2018/19 crop year at 24 MMT. Comparably, Agriculture Canada’s most recent estimate has put total wheat exports out of the Great White North at 22.7 MMT: 4.2 MMT of durum exports and 18.5 MMT of other wheat exports.
Through Week 20 of the 2018/19 Canadian crop year though, 7.22 MMT of non-durum wheat has been shipped out, up nearly 17% year-over-year.
If you’re recognizing the improved exports of higher quality of North America this year, then feel free to join me in the camp that this is likely attributed to the lower amount of higher-protein that international buyers have been able to purchase in 2018.
Wheat Prices Performing Well
All things being equal, the 2018/19 crop year is likely to end with the second-largest inventory of global wheat in the world. We won’t dig into the implications of that just today because it really only relates to 2019 wheat prices.
On that note, to round things out, average cash hard red spring wheat prices across Western Canada are 4.3% higher than where they started 2018.
CPS wheat prices have been the darling of the Canadian cash wheat market, up 24% for 2018, as it tracks closely to Chicago SRW wheat prices.
Overall, when you consider global wheat production was still the second-largest ever, wheat prices have performed relatively well in 2018. Of course, we can ho-hum about hard red spring wheat prices not performance as well as winter wheat prices, but the weakness is mainly attributed to the bigger North American wheat harvest. This isn’t to say, however, that we spring wheat prices might find better strength as we flip the calendar into 2019.
FarmLead – North America’s Grain Marketplace