Wheat Market Outlook and Prices

The Wheat Market Outlook is provided by Mercantile Consulting Venture Inc.

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World Wheat Overview:

Focus on Japan and the CPTPP:

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  • The free trade agreement between Japan and the European Union (EU) and the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) arrangement are leading to increased market competition for wheat and wheat product exports to Japan.
  • Japan imports a total of approx. 5.5- 6 mln mt of food wheat per year, and almost all food wheat is imported under the state trading system.
  • Under the import system operated by the Japanese state, the five major classes of wheat (i.e., U.S. Dark Northern Spring (DNS), U.S. Western White (WW), U.S. Hard Red Winter (HRW), Canadian Western Red Spring (1CW), and Australian Standard White (ASW)) account for 95% of Japan’s wheat imports. The remaining five percent (Canadian Durum, French wheat and some additional types of food wheat) are imported under the Simultaneous Buy and Sell (SBS) system.
  • In 2016, 2.5 MMT of U.S. wheat (49% of imports), 1.7 MMT of Canadian wheat (34% of imports) and 840,000 MT of Australian wheat (17% of imports) were imported by Japan. Nearly half of Japan’s imported wheat is hard wheat (DNS and 1CW) used for making bread, and Canada has recently increased its 1CW market share, at the expense of U.S. DNS exports, due to its price competitiveness.
  • Mechanics: Under the TPP agreement, Country Specific Quotas (CSQs) were established for Canada and Australia, and will increase annually from 40,000MT to 53,000MT and 38,000MT to 50,000MT, respectively, from Year 1 to Year 7. Like the EU EPA, the markup within TPP CSQs and the WTO quota (for TPP countries only) will decrease annually, and in Year 9 will be reduced by 45% from current levels (to 9.35 yen/kg). Also, within the TPP CSQs, the markup for wheat other than the five major classes will decrease annually, and in Year 9 will be reduced by 50% from current levels (to 8.5 yen/kg).
  • Under the provisions outlined under the CPTPP, the mark-up for Canadian Western Red Spring (1CW) and Australian Standard White (ASW) decreased from 17,000 yen/metric ton (MT) to 16,200 yen/MT between December 30, 2018 and March 31, 2019 (Year 1), and fell further (to 15,300 yen/MT) beginning April 1, 2019 (Year 2). Identical mark-up reductions have also been extended to wheat imports entering Japan under the much smaller EU quota. – The US is not part of the CPTPP, so will not be able to participate in the decreases of the markups.
  • All other things being equal, Australia and Canada enjoy an immediate advantage of 1,700 yen/MT ($15.74/MT) over U.S. wheat suppliers.
  • This is a great opportunity to expand Cdn. hard wheat exports to the world’s biggest single buyer of quality wheat -Japan- by 1 mln mt.

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Wheat Market Outlook

Significant events:

  • There were no real surprises in the WASDE April report. Certainly, there was not anything in the USDA’s numbers that was to frighten the Funds into covering their short. The bears could point to the corn number at over 2 bln bushels as bearish, and the likelihood that the wheat number was being underestimated. Futures traded in a narrow range as they looked for something new to give them a sense of direction. Funds did virtually zero during the week.
  • The old crop is coming to an end and the trade is increasingly focused on the weather around the world and the prospects for new crop.
  • Japan – CPTPP: Under the provisions outlined under the CPTPP, the mark-up for Canadian Western Red Spring (1CW) and Australian Standard White (ASW) decreased from 17,000 yen/metric ton (MT) to 16,200 yen/MT between December 30, 2018 and March 31, 2019 (Year 1), and fell further (to 15,300 yen/MT) beginning April 1, 2019 (Year 2). à If Canada needs to increase its exports due to lost canola export business to China, it would seem more exports of wheat should not be too hard to find. Japan is an ideal target market since the Trump/USA declined the new TPP.

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Primary Elevator Bids

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Primary elevator bids data source: PDQ

Grade Spreads in Canadian Dollars

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Relevant FOB Prices and Calculated Basis

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CLICK HERE to learn what the basis is and why it is important.

 

 

 

adobe-acrobat-pdf-file-512 CLICK HERE for the full report in PDF.

For the archived wheat market outlook and price reports, please CLICK HERE