Wheat Market Outlook and Prices
The Wheat Market Outlook is provided by Mercantile Consulting Venture Inc.
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2019/2020 Global Wheat Production Projection
- 2019 wheat production outlook: Mercantile sees global wheat production in 2019/10 to recover from the drought reduced numbers by ~23 mln mt, an increase of 3.1% FAO also foresees global wheat production to strongly recover from last year, rising by 4.0%, to 757.4 million mt in 2019. The bulk of the recovery is expected in the EU, where a larger planted area, combined with thus far favourable weather, is seen driving up wheat production by at least 8% from last year’s six-year low. In the Russian Federation, an expectation of increased overall plantings and beneficial weather could similarly push up production by almost 10%, while this year’s wheat output in the Ukraine is forecast to rise by nearly 8%.
- Weather will need to be watched keenly to see where conditions warrant adjustments to these early projections.
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: May ’19 contract Chicago winter wheat closed at 462-2, up 9-4 cents in Friday’s trade and up 22-6 cents for the week.
- May ‘19 contract Kansas hard red winter wheat closed up 6-4 cents at 443-0, up 12-2 cents for the week.
- In Minneapolis, May ’19 contract hard red spring wheat closed at 554-6, up 2-2 cents in Friday’s trade, up 4-2 cents for the week, while Jul ’19 hard red spring wheat closed at 557-4, up 1-6 cents for the day and up 5-6 cents for the week.
- Matif: Matif rose €5/mt.
- Funds: The recent selloff in Chicago-traded grain and oilseed futures has resulted in a record short speculative position across that market: Through Mch. 12, money managers expanded their net short in C. wheat futures and options to 49,286 contracts from 44,870 in the prior week, which was the previous record. Funds increased bearish views in Minneapolis wheat during the period to 8,893 futures and options contracts from 8,329 a week before.
- The selling streak in CBOT wheat finally halted last week, anchored by a nearly 6% rally in the May contract on Tuesday. During the full week ended March 12, however, the contract had fallen 2%, even with Tuesday’s jump. Money managers shaved their net short position in CBOT wheat futures and options to 72,148 contracts from 72,449 in the previous week. May futures rose another 1.6% over the last three sessions, and funds are pegged to have scooped up another 8,000 CBOT wheat contracts in that time frame.
- Canadian wheat exports were 207.8k mt for the week, for a total of 10.93 mln mt YTD, up 17% (1.611 mln mt) y/y vs the AAFC’s predicted 7% increase. The Canadian export pace has slowed. Four of the past five weeks have fallen below the YTD weekly average and are well below the 388k mt needed to reach the AAFC’s projected 18.7 mln mt. At the current pace, just 17.767 mln mt will be exported this MY.
- Durum: Canadian producers delivered 125.3k mt of durum into the Canadian grain handling system during week 32. Total deliveries are up 5% from last year at 2.597 mln mt.
- Exports through the week were 86k mt for a season total of 2.10 mln mt, down 16% from last year vs the AAFC’s -4.3% estimate. We continue to believe that the AAFC’s estimate is ~800k mt too high.
- Tunisia bought 25k mt of durum for $279.50 plus 17k mt for $282, likely French origin.
- There were several large wheat tenders though the week, but the US received very little business.
- US wheat sales for the week ending March 7th were disappointing at 263k mt vs the expected 400-600k mt. The majority (168k mt) of these sales were HRW. Total all wheat commitments are now 22.845 mln mt, up 3% from last year vs the USDA’s projected 7% increase. Class wise, HRW commitments are down 8.8% vs the USDA’s -14% prediction, while HRS and SRW continue to lag at +10.3% and +27.9% over last year vs the USDA’s projected +21% and +43% respective increases. The USDA cut export expectations last week, but given the current pace and FOB values, we expect they may not have lowered it enough.
- Winter wheat G/E ratings were 51% in KS (up 2%), 56% in OK (up 3%) and 28% in TX (down 8%).
- Attention is turning to the size of the US 2019/20 wheat crop. Vantage released their 46.72 mln acre estimate, while Allendale’s producer survey results were for a 47.414 mln acre number. With winter wheat area down 1.76 mln acres (USDA) spring wheat will take a larger than usual share of total wheat planting, making spring weather conditions even more important.
- A severe late-winter blizzard bringing 12-24 inches of snow hit the US Central and Northern Plains last week. The storm also bought heavy rain to E Nebraska, Iowa, Wisconsin and Minnesota prompting overland flooding. Analysts continue to speculate that cold wet soils will delay spring seeding, which gives the March 29 seeding report heightened importance.
- US-China trade agreement: Reports came out indicating that the two presidents have no intentions of meeting in person again in March or April.
- Australian wheat futures fell back early in the week to the lows of last July, but ended the week $3/mt higher. The Fob market also rose as ongoing dryness became a greater concern.
- Unchanged new crop acreage and trend yield would push the 2019/’20 wheat crop back to around 21 mln mt, but both may be unachievable given current long-term forecasts for hot temperatures and dryness.
- Fob values ended up around $6/mt at $258/mt for APW.
- Argentine Fob values for wheat fell sharply following trade projections for their 2019 wheat acreage to expand by up to 10%. This is assuming favourable weather for seeding which should start in ~6 weeks.
- Argentine March Fob wheat for 12.5% protein wheat dropped to US$225/mt (-$7/mt). The discount per ½% protein was at US$2-3/mt.
- EU shipments were big last week. The Algeria sale will be filled with French wheat, and the French vessel line-up was easily the biggest of the season at just under 700kt.
- German Co-operatives put the 2019 crop at 24.2 mln mt, up 19% on last year.
Black Sea wheat:
- The Turkish tender looked like it would still be mostly still filled by Russian wheat at ~$220/mt FOB.
- IKAR last week raised their 2019 Russian wheat estimate by 900,000 mt to 78.5 mln mt.
Significant purchases/ trades:
There was a good amount of business done last week:
- Turkey bought 290,000 mt mostly Russian 13.5 pro wheat for Mar-Apr shipment at US$238.50-$245.50/mt
- Algeria bought 450,000 mt soft wheat at $231.50-234/mt.
- Tunisia bought 75,000 mt soft wheat at $235 and 25,000 mt durum wheat at $279.50/mt.
- US inspections were 592,000 mt (season total 647 mln bushels down 6%), export sales were just 263,000 mt for a season total 839 mln bushels up 3% on last year.
- Russia was still able to supply Turkey with 2290k mt of wheat for March-April shipment.
- There was nothing fresh coming out of USA-China talks.
- Funds: The recent selloff in Chicago-traded grain and oilseed futures has resulted in a record short speculative position across that market: Through Mch. 12, money managers expanded their net short in C. wheat futures and options to 49,286; funds increased bearish views in Minneapolis wheat during the period to 8,893.
- FAO foresees global wheat production to strongly recover from last year, rising by 4.0% (+23 mln mt), to 757.4 million mt in 2019. The bulk of the recovery is expected in the EU, in the Russian Federation, and in the Ukraine. – Weather will have to be monitored carefully.
As the trade increasingly turns its attention to new crop wheat, while continuing to hope for a US-China trade deal, the focus as will be:
The Spec Fund shorts and whether last week’s actions prompt some short covering;
US March plantings and the potential problem of late planting in North America;
The dryness in N Africa and Australia and possibly the Black Sea (-a very warm dry forecast).
Our suggestions remain the same: liquidate old crop stocks hold new crop for the present.
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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