WESTERN PRODUCER — Brennan Turner has a bearish short-term outlook for wheat.
“It is more likely that wheat prices are going to come down than rally significantly into the spring and summer,” said the founder of the Combyne Ag crop marketing hub.
He noted that fall new crop hard red spring wheat futures at the close of 2022 were nearly identical to what they were a year ago.
Prices have been high for a year and a half, and growers need to be reminded that markets are cyclical.
Turner worries that if farmers wait until spring, the prices might not be as high as they are now.
“If you’re looking to price out new crop, the time to do it is probably in the next two to five weeks,” he said.
Turner is basing his advice on an historical analysis of price charts showing that they tend to dip lower the closer farmers get to seeding time.
Weather premiums typically don’t appear until planting time in the May-June window.
The U.S. winter wheat crop is in bad shape, but that can change in a heartbeat come spring.
Even if the crop condition doesn’t improve, the premiums likely won’t materialize until close to harvest in the June-July time frame.
Wheat markets have largely adapted to last year’s supply chain disruptions, and Turner feels there is more downside risk than upside opportunity in the market.
The good news is that Canada’s growers could gain market share in southern regions of the world this year, he said.
The Rosario Grain Exchange is forecasting 11.5 million tonnes of wheat production in Argentina, which would be exactly half of last year’s output.
Turner anticipates a battle for who picks up the slack in South American markets that Argentina typically services, such as Brazil.
Russia is the logical choice, but its export program has been hampered by international sanctions, financing problems and shipping challenges.
Canada and Australia should also be competitive in the region. Canada has done good market development work in South America, said Turner.
“Maybe we will take some business away from Russia, but at the end of the day it will come down to cost,” he said.
Russia’s export program has been lacklustre for the first half of 2022-23, but it is picking up steam of late, according to SovEcon, a leading Black Sea agricultural markets research firm.
“SovEcon expects record or near-record monthly export volumes in the second half of the season,” managing editor Andrey Sizov said in a recent report.
“Shipments will be supported by relatively high global prices, the weakening of the ruble and the pressure of record stocks on the domestic market.”
SovEcon is forecasting a record 21.3 million tonnes of exports in the first half of 2023, resulting in a total 2022-23 program of 44.1 million tonnes.
That is higher than the U.S. Department of Agriculture’s forecast of 43 million tonnes and would eclipse the previous record of 41.4 million tonnes set in 2017-18.
Contrary to Turner’s outlook, SovEcon believes global wheat prices bottomed out in December and are heading higher in the new year.
“The demand for Russian wheat will be supported by limited competition with the EU, where stocks have already been largely exhausted,” said Sizov.
France shipped 80 percent of its exportable supplies by the end of December compared to the usual 50 to 60 percent for that time of year, according to SovEcon. It is the largest wheat exporter in the European Union.
Turner is not overly concerned about increased export competition from Russia for Canadian growers.
“We’re probably going to compete the most with Australia more so than Russia in terms of quality and the markets we’re probably playing in,” he said.
Australian farmers harvested a record 36.6 million tonnes of wheat, according to the official government forecast.
However, there are quality issues in eastern Australia, where the best milling quality wheat is produced.
Turner thinks the country will have first crack at the EU market when it runs out of wheat in the March-April time frame. Canada and Russia will also be players in that market.
Contact sean.pratt@producer.com
