Wheat Market Outlook and Prices
The Wheat Market Outlook is provided by Mercantile Consulting Venture Inc.
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Global Wheat Consumption
- USDA expects global wheat consumption to remain at record high levels in 2018/19 due to increased human consumption of wheat. Human wheat consumption is expected to reach a record high 602 million mt, 4% above the 5-year average. Over the past ten years, global human wheat consumption has increased by 90 mln mt, while feed wheat usage has increased by 16 mln mt.
- At the same time, global supply of milling wheat is expected to fall this year due to challenging growing and harvesting conditions that hurt both quality and yields in many of the major wheat exporting countries. USDA expects global wheat production to fall to the lowest level in 5 years at 734 mln mt, down 4% from the record high of 763 mln mt in 2017/18. If realized, it would be 1% below the 5-year average and the first-time global wheat consumption has exceed global wheat production since 2012/13.
Global wheat production and trade:
There is a lot of competition in the wheat markets as wheat is produced around the world. Below is a brief synopsis on last week’s market events in the major wheat origins.
- Futures: Dec ’18 contract Chicago winter wheat closed Friday at 506-6, up 1-2 cents in Friday’s trade and up 4-6 cents for the week.
- Dec 18 contract Kansas hard red winter wheat closed up 2-6 cents at 482-6, down 4-2 cents for the week.
- In Minneapolis, Dec ’18 contract hard red spring wheat closed at 571-2, down 3-4 cents for the day, down 2-6 cents for the week, while Mar ’19 hard red spring wheat closed at 573-4, down 1-4 cents for the day and down 3-4 cents for the week.
- Funds: Index funds did very little. Spec Funds down to a -20 mln mt position, which is a smallish size position for them. They are short 7.5 mln mt of wheat, up 1.6 mln mt on the week.
- Matif: Matif wheat ended little changed from last week, despite a firm Euro and another week of poor volume EU wheat shipments.
- AAFC released their November balance sheet update. Canadian wheat production is estimated to increase just 1% this year (to 25.3 mln mt). An 8% increase in seeded area is off-set by lower yields (51.12 bu/ac in ‘18/19 vs 54.07 bu/ac in ‘17/18). 75% of the total production is CWRS, 9% is winter wheat (hard red, soft red, and soft white), 7% is CPS, 4% CNHR, while the remaining 5% is composed of CWSWS, CWES, CWS and CERS classes.
- Since the beginning of the month we have seen a gradual increase in basis levels across the Canadian Prairies. Northern AB and SK have seen the largest (increases 8-7 cents/bu), while smaller increases have been seen in the Southern regions of the Prairies (6-5 cent/bu, basis levels in SW AB are unchanged). These strong basis levels reflect the increasing demand for high quality Canadian wheat and are have sparked selling across the Prairies.
- As of grain shipping week 15, Canadian wheat exports (excl. durum) reached 5.4 mln mt up 1.02 mln mt (+23%) from last year.
- YTD producer deliveries of 6.162 mln mt are up 16% from last year, while terminal receipts of 6.606 mln mt are up 17% y/y.
- Canadian elevator street prices show weaker this week, but we consider most elevator will pay premiums to street prices. We would sell wheat basis Saskatchewan at C$7.25 for April/May.
- Wheat currently shows the best elevator margin estimates among the various commodities:
- Last week’s US export sales of 438,256 mt were at the low end of the 400-650k mt expected, down 33.7% from last week and down 10.4% from the same week last year. Saudi Arabia’s tender for 475k mt of Jan-Mar wheat closed Friday, the results will be released Monday.
- US weather forecasts are little changed, remaining dry and cold. Snow covering parts of the Plains continue to hamper winter wheat seeding. G/E ratings for the US winter wheat crop are up 3% from last week to 54%, unchanged from last year. Winter wheat planting is 89% complete still 5% behind last year, and only 77% of the crop has emerged (83% LY).
- The 2019/20 US wheat area is going to be up this by year, the question is how much. Last week’s USDA report increase wheat seed usage up 7 mln bu to 69 mln bu, a 9% increase from last year. Meanwhile, the USDA’s November long-term projection has 2019/20 total US wheat plantings up 7% to 51 mln acres (essentially a return to trend). In September, Informa had their number at 50.1 mln acres with winter wheat taking up 34.111 mln of these acres, up 6% from last year’s 32.243 mln. There will not be any reliable estimates until after the US-China story clears up.
- Fob wheat values continue to do the work of reallocating demand. Weather issues in S America are complicating the overall picture. This may cause Argentine to lose out to France in the next Algerian tender.
- French 11.5 protein wheat now is the most expensive wheat in its class and it is still too soon to know the impact the adverse weather is going to have on Argentina’s wheat.
- Fob price changes since the start of August are: PNW HRS 13.5 -$12.50, Vancouver CWRS 13.5 -$2.50, HRW 11.5/13 pro -$27.20, HRW Ords -$21.70, APW WA +$1.00, French 11.5 -$18.30, German 12.5 -$20.60, Baltic 12.5 -$21.90 and Russian 11.5 +1.00.
- The Australian wheat harvest did advance despite the rain, and even basis a 16 mln mt crop, Australia will still have 8-10 mln mt to export.
- But with APW priced at $270-280/mt and ASW priced at $260-270/mt, this wheat remains priced out of all but the most inelastic demand.
- Heavy rain has pounded Argentina last weekend causing both flooding concerns and quality concerns (we have heard some mentions of sprouting) in their wheat crop. BAGE has their harvest at 16% complete. Surprisingly, production estimates were left unchanged at 19.4 mln mt (private estimates have trimmed estimates below 19 mln mt), and G/E ratings were increased to 44% (vs 58% LY). Rain is supposed to lift over the weekend and then return this week.
- Argentine FOB offers ended the week ~$5/mt higher. Only 11.5% protein wheat was offered due to the rain.
- The rains in Argentina could potentially cause quality problems that might keep France in the game at the next Algerian tender.
- French winter wheat crop ratings are at 82% Gd/Exc. were 15% below last year’s and the lowest in 6 years. Seeding still is only 92% complete.
Black Sea wheat:
- Sellers are said to be looking for nearby bids.
- Temperatures in Russia at -6°C are not enough to be a real threat.
- 5% protein Black Sea wheat traded at US236/mt for Jan. 2019.
- Wheat prices in China rallied to near 2-month highs, in spite the S&D adjustments they made last week (which USDA adopted) and in spite of a 380k mt sale from state reserves at over US$30/mt below futures.
Significant purchases/ trades:
To our knowledge, there were no significant trades concluded this past week.
- Saudi Arabia’s tender for 475k mt of Jan-Mar wheat closed Friday, the results will be released later today (Monday).
- Iraq is expected to tender Nov 26th.
- Last week’s US export sales of 438,256 mt were at the low end of the 400-650k mt expected, down 33.7% from last week and down 10.4% from the same week last year.
- There are some good volume, higher quality wheat tenders expected over the next 10 days. In the context of partial ineligibility of Russian wheat, limited good quality supplies in the EU, ongoing weather concerns in Argentina, and contract lows in KC following the completion of fund liquidation, this may become interesting for North American wheat.
- Fob values continue to do the work reallocating demand. Weather issues in South America are complicating the overall picture. This may cause Argentine to lose out to France in the next Algerian tender.
There are some volume quality wheat tenders over the next 10 days, which should help to get a handle on real values on this market. Weather in the precipitation forecast for the Black Sea looks more favourable, but central and eastern Europe is completely dry with a significant cold spell set for week two of the forecast. Traders continue to be bullish on wheat even though prices have shown more weakness recently.
We note that some elevators were paying $7.25/bu for 1-13.5 CWRS for Dec. delivery, which is not a bad price. We would need a better railcar supply in Canada to reach world prices for wheat. In lack thereof, we would sell wheat basis Saskatchewan at C$7.25 for April/May.
Primary Elevator Bids
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Primary elevator bids data source: PDQ
Grade Spreads in Canadian Dollars
Relevant FOB Prices and Calculated Basis
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