With trading in the U.S. still going, grain markets re-ignited some bullish sentiment on the Canadian May long weekend Monday to revisit multi-month highs seen just 2 weeks ago. Weather premiums for northern hemisphere production concerns and wetness in South America are mostly behind the rally, with short-covering activity helping catalyze values higher. The higher highs are being limited by farmer selling and technical selling. Adding to the bearish foundation are the healthy rains in some areas are also helping alleviate drought concerns, and then there’s also the reality that there’s still a big carryout of most crops for the upcoming crop year calendar flip.

Speaking of new crop, on May 10th, we got the USDA’s first estimates of the 2024/25 balance sheet. For Russia and Ukraine, those estimates went out the window though as widespread frost hit Black Sea production areas and, combined with ongoing dryness concerns, this has really been the catalyst for the rally in grain values this month. On this side of the Atlantic, volatile weather is expected to continue as the transition from El Nino to La Nina occurs, but the recent moisture events are going to go a long way to helping get this year’s crop developed. The NOAA’s most recent 3-month forecast suggests relatively average temperature and precipitation in most of the Midwest and Canadian Prairies, but certainly some areas that likely won’t get enough rain, along with hotter weather.

Bullish Black Sea vs USDA

• In their first publication of the 2024/25 balance sheet, the USDA said wheat production will improve, but record demand will continue to keep global wheat stocks at their lowest level in nearly a decade.
• The USDA raised Canada’s feed wheat use in 2023/24 by 1 MMT to reduce ending stocks to just 2.37 MMT, which would be the tightest carryout on record (we can compare to Agriculture Canada’s updated balance sheet later this week).
• Old crop US HRS wheat exports were raised by 272,000 MT, while durum exports were lowered by 60,000 MT.
• New crop US wheat production, exports, and stocks are all slightly higher than last year, and accordingly, average prices are $1.10 USD/bushel lower than this time a year ago.
  • Last week’s Wheat Quality Council pegged average Kansas winter wheat yields at 46.5 bu/ac, the highest since 2021 and 2.7 MMT higher than last year’s drought-riddled crop.
• Amazingly, Russia’s 2023/24 wheat exports were raised by another 1.5 MMT to 53.5 MMT.
• For new crop, bigger crops in North America and in the Indo-Pacific (China, India, and Australia) will offset smaller harvests in the EU, UK, and Black Sea.
  • Ukraine and Russia’s forecasted wheat production of 21 and 88 MMT respectively, do not account for the frost earlier this month (more on this in a bit).
    • SovEcon dropped its Russian wheat output estimate by nearly 4 MMT in a matter of days to 85.7 MMT. IKAR dropped their forecast by 5 MMT to now sit at 86 MMT.
    • This would suggest yield losses of up to 30% in some area affected by the drought and frost combo.
    • Last week, Russian wheat export offers jumped wheat jumped $18 USD/MT (or 50¢/bushel or $24.50 CAD/MT and 67¢/bushel, suggesting the frost damage may be greater than what the market priced in two weeks ago.

Prices Reflect Strong Canadian Wheat Demand

• Plant 2024 is in full speed with Manitoba and Alberta’s efforts currently sitting above last year and the seasonal average, whereas Saskatchewan is tracking slightly behind normal, due to wetness.
• With Minneapolis futures rallying 12% over the past month, new crop Western Canadian HRS wheat prices (for September delivery) aren’t too far off from a year ago, with basis now basically the same.
• Durum prices have followed HRS wheat higher, with average new crop values in the Canadian Prairies inching back closer to double-digit handles.
• Feed wheat values have also rebounded from their multi-year lows.
• Prices will likely stabilize around these values until the next major catalyst, which could be in the next 1 – 3 weeks.
  • Bullish: more weather issues
  • Bearish: like weather issues being overblown or a major rail strike happening.

• On May 7, StatsCan published Canadian grain stocks as of March 31st, 2024, which showed less inventory for almost all crops year-over-year, except for barley, canola, and mustard.
• Total Canadian wheat stocks of 11.75 MMT are down 15% from the both last year and the 5-year average.
  • There’s way less non-durum wheat on the farm than usual, likely a function of the strong export campaign in 2024/25.
  • On-farm durum stocks are down 27% compared to last year, with overall inventories down nearly ¼ versus March 31, 2023.
  • Provincially, Alberta wheat and durum stocks are down the most compared to the other Prairie provinces, with nearly 1.2 MMT less than a year ago.

Barley Still Available

• With corn use competing so heavily with barley in the feedstuffs category, it shouldn’t be surprise that Canadian barley inventories are 10% larger year-over-year at 3.06 MMT.
  • Almost all of the increase, however, is held on-farm, as commercial stocks are down nearly 20% year-over-year.
    • Provincially, there’s much more barley to go around in Saskatchewan and Manitoba compared to not just last year, but also the seasonal average.
• With the larger stocks held by farmers in Saskatchewan and Manitoba, it helps explain why feed barley prices are a bit lower than Alberta’s values.
  • Hand-to-mouth buying should continue for the next month but then will taper off, as will prices, over summer months as 2024 supplies become available (again, save for any major bullish weather catalyst.)

To growth,

Brennan Turner

Independent Grain Market Analyst

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