WESTERN PRODUCER — Bruce Burnett did not mince words during a recent MarketsFarm webinar.
“The wheat market has been brutal, there’s no question about that,” said the analyst.
It has gone counter to what he was anticipating for 2023-24.
Nearby Minneapolis wheat futures prices have been on a steady decline since early 2022, seemingly ignoring market fundamentals.
Wheat ending stocks for the major exporters are forecast at 53 million tonnes, an 8.3 million tonne drop from the previous year. That would be tied for the second lowest level since 2007-08.
“It’s very, very tight,” Burnett told growers attending MarketsFarm’s fall market outlook.
Demand for Canadian and U.S. spring wheat has been especially strong.
Canada is on pace for 20 million tonnes of total non-durum wheat exports, but MarketsFarm believes there is only enough supply for 18.8 million tonnes.
That means there will be some demand rationing through higher prices in the coming months.
Meanwhile, U.S. hard red winter wheat and hard red spring wheat stocks are expected to drop to levels not seen since 2013-14.
So, what gives?
The reason futures prices are so low is that the funds have taken a record short position in the Minneapolis market.
Burnett said funds have rarely participated in the spring wheat market, but this year they are playing a major role in determining prices.
“It doesn’t make a lot of sense given we are seeing strong demand on both sides of the border,” he said.
Funds have also taken short positions in the Chicago and Kansas City wheat contracts.
Burnett thinks the funds will eventually come to their senses, resulting in a big price increase.
“But for now, the funds are satisfied with being short,” he said.
The durum market has also been “a dog,” said Burnett.
That is not from lack of demand. North Africa’s harvest was below four million tonnes for the first time since 2015. It is the second consecutive short crop for the region.
The region needs “substantial imports” and that is already happening, he said.
“The problem has been it has been from the wrong countries if you’re Canadian,” said Burnett.
North Africa has been scouring durum from the Black Sea region and the European Union.
Turkey has also emerged as a major supplier to Italy and other EU countries.
The good news for Canadian growers is that persistent rains damaged crop quality in Russia and Kazakhstan, so he expects demand for Canadian durum to start picking up.
It could really take off if it remains dry in North Africa. The next three months will tell that tale.
There should also be strong demand from the United States, where production dropped by five million bushels from last year.
The U.S. Department of Agriculture is forecasting more than one million tonnes of imports for that country.
MarketsFarm is forecasting 497,000 tonnes of Canadian durum ending stocks. The market is usually comfortable with one million tonnes, so that is extremely tight.
Canadian cash prices are in the $12 to $13 per bu. range, with durum fetching a $3.58 premium over spring wheat, which is on the high side.
If spring wheat garners some support, it should also lift durum prices.
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