As global wheat supplies tightened due to the Russia-Ukraine War and the El Niño crisis that dried up the Australian crop, Canada was expected to be the bright spot in the market.
In its August field crops main update report, Statistics Canada reported that farmers planted 10.7 million hectares of wheat in the 2023-24 marketing year, the largest area of wheat in the country since 1997. Spring wheat led the expansion, with acreage up 8% year over year to 8.3 million hectares.
But Canada is also experiencing rising temperatures and poor soil moisture, leading market participants to question the quality of the Friswiss crop and the country’s export potential.
Agriculture and Agri-Food Canada magazine in its August report lowered its forecast for total wheat production in fiscal 2023-24 to 33.2 million tons — down 2% year-on-year — from a full-year forecast of 35.3 million tons released in July. It forecasts Canada’s wheat exports for fiscal 2023-24 to come in at 23.8 million tons, down from the 24.6 million tons last season.
“For the 2023-24 period, the greatest agricultural risk is climate-related, as severe drought persists across western Canada and the strongest impacts are felt in southern Alberta and western Saskatchewan,” the AAFC said in its report. “Currently, there remains significant uncertainty surrounding crop yield and production estimates.”
According to the AAFC report, Canada’s soft wheat production was 28.3 million tonnes in fiscal year 2023/24, broadly flat compared to the previous year. Durum wheat production, on the other hand, is expected to fall more than 9% year-on-year to 4.9 million tonnes, with the main growing areas being southern Alberta and southwest Saskatchewan.
“Supply was already tight early in the current crop year and prices reacted strongly to the upside,” said Wes Petkau, senior grains and oilseeds analyst at S&P Global Commodity Insights.
Spring wheat market participants have expressed concerns about the impact of weather on the new crop throughout the growing season. Market sources estimated Canadian Western Red Spring wheat production at around 21-22 million tonnes, with forecasts varying widely by market.
Volatile grain futures markets coupled with uncertain earnings estimates left many market participants on the sidelines. From May, sales were mainly hand-to-mouth. Bid-offer tensions for Vancouver FOB strike prices, the premium over Minneapolis spring wheat futures, were high for many months as market value fluctuated by trading location. Many in the market were content to wait until shortly before harvest to actively market the grain – when more information about the quality and protein content was known.
Wheat price development
Premiums for FOB Vancouver versus Minneapolis spring wheat futures were relatively stable during the year, particularly as many market participants began to anticipate weather and war-related volatility. FOB prices mostly tracked Minneapolis spring wheat futures, which were very vulnerable to the ongoing volatility.
The December contract on the Minneapolis grain exchange hit an eight-month high of $9.445 a bushel in July after the end of the Black Sea grain trade. In Vancouver, prices remained broadly stable throughout the marketing year, rising slightly during the peak September-October harvest before cooling off in the following months.
However, ongoing tensions in the Black Sea region caused Canadian wheat prices to rise sporadically as the year progressed. But considering that overall FOB Vancouver prices moved mostly in tandem with futures throughout the year, the massive market volatility had kept trading activity mostly subdued.
Platts valued the 13.5% FOB Vancouver 30-45 days forward at $316.18/mt on 30 August, down $62.47/mt yoy and $56.86/mt lower than the first 2023 assessment, data from S&P Global showed.
Muted interest in wheat trading
Market liquidity was low for much of the growing season as trading participants remained uninterested amid ongoing volatility, making price discovery challenging. The market value fluctuated dramatically each day meaning sales were limited.
As crops suffered from heat stress and weather concerns worsened, farmers were keen to hold on to both old and new crop supplies until just before harvest.
As the harvest progresses over the next few weeks, farmers are likely to start offloading more supplies as holding onto the crop due to heat stress will cause crop moisture to drop below required levels, a trader based in Regina, Saskatchewan.
International bids are being closely watched during this lull in market engagement, particularly the regular Japanese bid by the Japanese Ministry of Agriculture, Forestry and Fisheries, which has consistently sought, often sourcing, high-protein wheat from the US and Canada.
Although tenders in Japan called for 13.8% CWRS wheat, which is typically at a premium to 13.5% CWRS wheat, the difference in quality between the two was minimal for much of the year. The market value for the tender often matched Platts’ estimated 13.5% FOB Vancouver wheat market.
Concerns about global wheat supply
The increasingly dry and hot weather is keeping the markets in suspense. The drought in key wheat-growing regions in North America and the EU is also increasing supply pressure.
“With Australia suffering from El Nino pressures and supplies from Ukraine falling, Canada was expected to fill the gap.” But its limited potential this year is likely to result in further tightening of global supply,” he said a trader of a multinational trading company.
In the latest World Agricultural Supply and Demand Estimates report, dated Aug. 11, the US Department of Agriculture put global wheat exports at 209.4 million tons in fiscal year 2023-24 (July-June), down 9 million tons from the previous fiscal year.
Wheat exports from Ukraine, a key supplier, have been stagnant since the Russian invasion in February 2022. With the Black Sea Grains Agreement falling apart in July, there have been doubts about future exports from Ukraine.
In an August report, the USDA estimated Ukraine’s wheat exports for fiscal 2023-24 at 10.5 million tons, up from 16.8 million tons a year earlier.
Australia’s wheat exports are also likely to fall sharply due to rising temperatures and likely falling yields. According to the USDA, Australian wheat exports are expected to fall by 11 million tonnes to 21.5 million tonnes in fiscal year 2023-24 (October-September).
With weather no better in Canada’s key wheat-growing regions, prolonged drought conditions are likely to weigh on the crop and limit opportunities to close the export gap.
Source: Platts
Comments are closed.