WESTERN PRODUCER – The global appetite for wheat has been on a steady upward trend for the past two decades or so.
That, combined with the war in Ukraine and dry conditions affecting production in some major wheat exporting nations, should set the table for continued support of global wheat prices.
“We’ve had this situation where (global) production has been outstripped by usage for the last several years,” said Chuck Penner, market analyst with LeftField Commodity Research.
“When that happens, you have global wheat stocks declining.”
In a recent wheat market outlook presentation at CropWeek in Saskatoon, Penner painted a generally favourable supply and demand picture that should have Canadian wheat sellers feeling confident about the direction of wheat prices in the months ahead.
According to Penner, global wheat ending stocks are at their lowest levels since 2016-17 and global days-of-use inventories are sitting at less than 100 days worth of supply. That’s the lowest level the world has seen since 2014-15.
With Chinese stocks removed from the supply equation, global inventories become even tighter, he added.
China typically does not export any of its wheat,and there is ongoing uncertainty about the quality of China’s domestic wheat inventories as well as the accuracy of its domestic supply figures.
In addition, U.S. wheat inventories are at their lowest levels in 15 years.
The United States is not the dominant player in wheat export markets that it used to be, Penner said.
But tight stocks south of the border are likely to lend additional support to Canadian export prices.
“It’s a situation where (global wheat stocks) are getting tighter,” Penner said.
“That’s good news (for Canadian wheat growers).”
With so much supportive news on the supply side, Canadian wheat producers might be curious why domestic markets have shown some weakness in the past couple of weeks.
The explanation, Penner suggested, is that markets have not fully accounted for the tight global supply situation that is evolving.
“You look at last week’s wheat market and you (think), ‘something’s not lining up here. The wheat market is down … yet stocks are tightening up.’ ”
That’s because “wheat tends to get ignored,” Penner said.
“People get complacent about the wheat market and frankly it’s overshadowed by the corn and soybean markets, particularly in the U.S.”
“So, in my opinion … this (the tight global inventories scenario) is the true picture and we’ll see prices and the futures market reflect that more as we move forward.”
In Canada, non-durum wheat production had a rebound year in 2022-23, following an abysmal drought-impacted harvest in 2021-22.
Canada’s total non-durum wheat harvest last fall was nearly nine million tonnes higher than it was a year earlier.
Total 2022 production was estimated at roughly 11 percent higher than the previous five-year average.
Prairie spring wheat (CPS) in particular showed impressive year-over-year gains in 2022, with total harvested tonnage up approximately 51 percent over the previous year.
Higher production in the fall of 2022 boosted Canada’s total non-durum wheat supplies by more than five million tonnes in the 2022-23 crop year to nearly 32 million tonnes.
That figure, which includes carry-in supplies, imports and domestic production, should leave Canada with “average but not heavy supplies” heading into the final six months of the current marketing year.
Meanwhile, farmer deliveries of non-durum wheat since Aug. 1, 2022, are moving at a record pace, with total Canadian exports running well above average through September, October and November.
Recent U.S. wheat futures have been “testing the lows to establish price support,” but seasonal support for wheat prices is likely in the coming months.
Canadian growers can expect to see strength in futures and basis entering spring, Penner said.
The United States is not the dominant player in wheat export markets that it used to be.
Unfavourable conditions affecting US winter wheat production along with reduced winter wheat acreage in Ukraine should lend additional price support, he added.
I don’t make market predictions, Penner said.
And “we don’t give sales recommendations (as far as being) X percent sold,” he added.
“But I wouldn’t be telling anyone to rush out and sell the rest of their wheat any time soon.”