As we enter March, the updates to acreage forecasts are almost weekly, questions over the South American crop are less intense and North American weather becomes a great focus for grain markets.
While everyone is watching drought conditions in the Americas, we’re also very cognizant of conditions in Europe. Specifically, the EU wheat crop has had decent snow cover. Soil moisture in Europe is also in pretty good shape after a bit of a wet fall in a few places. This would suggest a pretty strong wheat crop that is a few weeks away from emerging from dormancy.
That being said, some significantly lower wheat exports will force 2017/18 EU wheat ending stocks higher. This intuitively continues to weigh down European wheat prices. We’re cognizant of cashflow needs going into the 2018 growing campaign, not just in North America, but also in places like Russia and Europe. With some potential selling by those farmers in the next few weeks, coupled with decent weather in Europe, wheat prices may be pressured.
The NOAA says that there is likely going to be below-average precipitation for the Southern and Central Plains over the next 3 months. Less rain is in the mix the further south you go. For the Northern Plains, decent precipitation and below-average temperatures are expected over the next month. The threat of drought is weighing on the minds of many though. However, with some better soil moisture conditions, one could easily argue that more spring wheat and durum wheat could get planted this coming spring.
We know that with fewer pulse acres in Western Canada getting discussed for Plant 2018, durum is gaining more attention in Prairies, which gives rise to more conversation about price potential (the link covers it). We also must account for the negative impact that Italy is having on Canadian durum prices. We know that wheat prices tend to see a bit a seasonal push through the end of this month. The next weather premium market tends to return in April/May once more about the North American crop is questioned.
For wheat, global trade will surely be impacted by supply out of the Black Sea and demand out of Asia (if you didn’t know, there’s a new wheat king in the market). What’s certain is that with the Trump administration not necessarily looking for free trade deals, US wheat farmers are missing out on deals like the Trans-Pacific Partnership.
The obvious elephant in the room is drought conditions in major wheat-growing areas across the U.S. Plains and Western Canada. And while money managers – who know little-to-nothing about how a wheat crop is grown – will likely jump on the headline-focused bandwagon. This will intuitively support some higher prices on the futures market, we have to be cognizant of record supplies still available globally. Thus, opportunities will likely build up and we should look to “sell into strength” and sell on the rumours of the weather market, but the profit on the fact.
Brennan Turner, President & CEO of FarmLead
Brennan Turner hails from Foam Lake, SK, where his family started farming the land in the early 1900s. After graduating with an economics degree from Yale University, Brennan played professional hockey and worked as a Commodity Analyst on Wall Street before starting FarmLead.com. FarmLead was named one of Canada’s top startups in 2015 and one of Forbes most innovative companies in agriculture in 2017.