The market for Canada’s wheat shows promise, even if no one can say that it’s going to be a clear winner.
“It’s not like we’re going to see the doubling of prices,” said Brennan Turner, chief executive officer of FarmLead.
“There are a number of variables that are likely to push wheat prices higher than there are to push prices down.”
Still, an outlook of ‘not bad’ is looking pretty good considering the backlog of grain that built up over the winter (because of a rail strike, track blockages, and then blockades) followed by the pandemic.
But in addition of a big increase in rail shipments of grain (partly because other rail traffic has dropped) there has been some increased demand for food staples since the pandemic struck.
“If you were to compare what we’ve shipped in the last two months to the same two months a year ago, it’s pretty substantial,” said Turner. “The bottom line is that COVID-19 has improved demand a little bit.
“The question that anybody who has been watching the wheat prices is asking is, ‘How long is this kind of new-found world of demand going to last for?’ I think it will as long as we don’t have a vaccine.”
Geopolitics plays into the story. Russia is going to introduce trade restrictions, which is likely to open the door to increased volatility.
“We don’t know exactly how much wheat Russia is going to export in the next six months, basically,” he said. “Come January, which is also the time when we start to see wheat prices at their seasonal highs over the winter, you could see some fireworks. That’s an exciting perspective to keep in mind.”
Australian wheat production has been down pretty significantly because of drought. There is significant dryness in Europe, parts of the Black Sea and Russia, and most of Ukraine.
All of this could be in Canada’s favour. There are also fewer trade barriers on wheat than there are on other Canadian crops.
Canadian rail transport has moved a lot of grain since the lockdown in March.
“It’s no secret that we’ve been doing a pretty good job of moving grain these past couple of months,” said Turner.
Watch for price spikes
Producers should keep a close watch for selling opportunities, said provincial crop market analyst Neil Blue.
“There’s a strong demand for wheat, and it’s increasing, and any blip on the production side could cause the price to improve rather quickly,” said Blue.
Canadian exports have improved over the last couple of months, with 200,000 tonnes more wheat shipped than the same period during 2019.
“The slowdown of oil during COVID-19 enabled grains to move. There’s been quite a bit of rail movement increase and that’s part of it,” said Blue.
The Canadian dollar continues to be low compared to the American dollar, which means that it could be advantageous to buy from Canada.
“That’s given us a bit of a leg up in terms of the wheat export market,” said Blue.
Wheat carry-over will be increasing on non-durum wheat, but not to burdensome levels.
“It’s not really a major problem as far as storage in this country,” he said.
Bangladesh, China and Indonesia have been purchasing a lot of Canadian wheat. China imported more wheat in May 2020 than it ever has historically. While Canada is exporting a lot of wheat to other countries, the price has been relatively low. Not many countries are stocking up on wheat, since stocks are abundant.
“Buyers become sort of complacent in that sort of situation,” said Blue, but that could change in a hurry if weather woes hit a major global producer.
Drought issues in North Africa, in countries such as Tunisia, Morocco and Algeria, have affected production.
“Those countries have been pushing for more self-sustainability that comes from durum and wheat crops. They’re importing more, and everyone knows it’s because of the drought issue,” said Turner.
One of the signs of potential strong demand is the mediocre futures price in the United States. There are some stronger basis levels offered by buyers in Canada, and that has provided a better pricing opportunity for Canadian producers.
Right now, Blue doesn’t see wheat as a major surefire winner, but the potential is there.
“All it would take is a major production shortfall from a major exporting country to cause concern to arrive,” he said.
Producers should watch the conditions of both the American and Canadian crops, said Blue.
Turner said producers should try not to lock in sales at harvest time, because of the harvest lows.
“We tend to see wheat prices peak in the fall at the end of October, early-November time frame,” he said. “I’m specifically watching for that time period. Sometimes they carry into December. Because of the trade restrictions/export restrictions from Russia starting in January, we could see a little bit of fireworks into January. That’s going to be the big wave of selling opportunity that I am looking for.”
The biggest overall factor could be the Canadian loonie.
“If the Canadian loonie drops because demand for commodities is down, then our GDP is going to take a bit of a hit, which should impact the Canadian dollar,” said Turner. “The next window would be in the first few weeks of January, which aligns with the historical prices.”
Canada has also been sharing the message of strong, high-quality products that can help with food security this year, he said.
“This message is already being shared with purchasing agents around the world and we’re starting to recognize those benefits clearly on the export reports,” he said.