Grain markets are finding some bullish footing on increased geopolitical and weather premiums, just as Plant 2024 hits full-stride with the calendar flip to May. Wet weather in southern Brazil and Argentina, as well as persistent insect issues in the latter are also supporting the rally, which is catalyzing values higher with complimentary technical buying. On the flip side, dry conditions around the Black Sea and persistent wetness in Western Europe are pushing the wheat complex higher as managed money has started to cover their large short positions. The question now becomes just how many shorts are left to cover and what the market will need to get there. Arguably, in the last 2 weeks, the fundamentals of the grain complex have changed, and this is why we’re starting to see fall / winter 2023 highs come back into focus.

This should be considered an opportunity for both old and new crop contracting (read: make sales when you can, not when you have to) especially when we consider the known and unknown unknowns. For the former, we know that 95% of CN and CP railway workers have already voted to strike, which could start anytime after May 22 (or the week after the Canadian May long weekend). Referencing June 2023’s exports, the Canadian Grain Commission estimates a $35M loss for the agricultural industry for each day the railroads are not operational (or over $1 Billion if the strike lasts a month). For the latter, Mother Nature is the main unknown unknown as speculators can bulldoze through any prevailing trading winds at the slightest hint of moisture in areas of need, or ideal growing conditions in others. As a reminder, now is the time to put in some targets so that the market can do the work for you while you’re focused on getting this year’s crop in!

A Repeat of All Eyes on Black Sea Wheat

• As a result of the transition of El Nino to La Nina, southern Russia, along with parts of Ukraine and Kazakhstan, received less than half the rain they normally do in March and April.
  • Additionally, for Russia’s areas, no rain is forecasted for the next couple weeks.
  • IKAR just lowered its 2024/25 Russian wheat output forecast by 2 MMT to 91 MMT, and exports by 1.5 MMT to 50.5 MMT.
  • Some comparisons are being made to 2010 when a similar El Nino to La Nina transition dried Russia production up, and over 5 weeks in June/July that year, Chicago SRW wheat prices nearly doubled.
• Over the last few years, Russian wheat has made up for production losses in other areas and so a smaller harvest would add bullish pressure.
  • 2024/25 year-end wheat stocks held by major exporters will likely to be 15 – 20 MMT less than where we end 2023/24.
    • StoneX believes that there’ll be a relative shortage of milling wheat in 2024/25.
• Adding to the bullish variable column is Ukraine, whose government is expecting wheat exports in 2024/25 to fall by 4 MMT to 14 MMT on account of lower production.
• Demand for US wheat is improving as 2.09 MMT where shipped in March, an 18-month high.
• French wheat crop ratings continue to sit at multi-year lows: 63% good-to-excellent (G/E) for soft wheat and 67% for durum.

USDA Says Smaller Wheat Crop for Canada

• The USDA’s attaché in Ottawa is estimating a total Canadian 2024/25 wheat harvest of 33.7 MMT, which would be nearly 1 MMT below AAFC’s last forecast of 34.6 MMT.
  • They also noted that, as of March, food manufacturers are buy wheat at their lowest price in 3 years, whereas consumers are paying 23% more for flour over the same timeframe.
  • The USDA’s office in Ottawa is also estimating 20 MMT of total non-durum wheat exports in the current 2023/24 crop year, also slightly below Ag Canada’s 20.25 MMT target.
• Through three-quarters of the current 2023/24 crop year, weekly non-durum exports are averaging 410,000 MT.
  • Need to average just 325,000 MT per week over the remaining 13 weeks to hit AAFC’s target (this would be conditional on the railroads operating as normal though!)

• Through 39 weeks, durum exports are tracking at nearly 70,000 MT per week; this is a significant improvement from the first 13 weeks, whose weekly average was less than 50,000 MT.
  • Need to average 38,000 MT to hit AAFC’s full crop year target of 3.2 MMT.
  • Worth noting is that USDA’s forecast for 2023/24 durum exports is currently at 3.5 MMT.
• The USDA’s attaché is also estimating a 2024/25 durum harvest of 5.51 MMT, slightly below Ag Canada’s 5.66 MMT.
  • They note that a condition of this will be moisture, as even though more wheat tends to get planted in dry years, there’s still a major deficit across the Prairies.

The Canadian Barley Opportunity 

• The USDA’s Canada attaché is expecting total 2023/24 corn imports – namely driven by feedstuff needs in the Prairie provinces – will only be a little more than half of the volume brought in during the drought of 2021/22.
  • Most feedlots are covered until new crop supplies come around, but feed barley prices are currently about $15 CAD / MT less than landed corn values.
• Generally, the demand for barley has been subdued compared to the last few years, which is obviously leading to weaker prices and less acres in 2024/25.
  • This helps explains the USDA Canadian attaché’s estimate of a 9 MMT crop with Harvest 2024, versus the AAFC’s current forecast of 9.5 MMT (many private estimates already believe this latter number to be too high).

• With lower prices and demand can come a reshuffling of trading partners on the international front, which leads us to review what that current landscape looks like.
• Most of the world’s largest feed barley consumers, are also the largest producers and exporters, namely the EU, Australia, Russia, and Canada.
  • Thanks to 3 consecutive years of bumper crops, Australia has taken the global lead as largest barley exporter.
  • China is the world’s largest feedstuff consumer and can be very price sensitive (read: substituting between feed barley, feed wheat, corn, soymeal, canola meal, etc.)
• Worth highlighting that some of our normal wheat trading partners have seen a slight uptick in barley imports over the last 5 years, including Vietnam, Algeria, Tunisia (not listed in charts below).
  • The U.S. has also been importing more barley, which is likely a function of their own decline in planted area and production

To growth,

Brennan Turner

Independent Grain Market Analyst