Wheat demand could sway planting decisions

Ah, it’s the eternal question for many a Prairie farmer — should I plant spring wheat or canola? The two often jostle for top spot on the planting intentions report compiled by Statistics Canada every spring. In part, that’s driven by rotational considerations, but prices and markets play a big role in what farmers decide to plant, and canola tends to win out since it usually earns more.

But canola has experienced a few geopolitical curveballs this year, and one wonders if that will lead to more wheat acres until the canola market gets back to normal.

It’s easy to get caught up in this kind of speculation, but Bruce Burnett, director of markets and weather information with Glacier FarmMedia, reminds producers there is a much wider global picture for wheat. “It’s a glass half empty/half full kind of story.”

Let’s get the half-empty side out of the way. “We had a rebound in global production this year,” he says. “The USDA puts global production at 730.6 million tonnes in 2018-19, and it’s currently projecting 768 million tonnes this year, so it’s a significant jump.

“And while there have been some difficulties in the Black Sea region, Russia and Kazakhstan, the grain quality has been good overall, and the U.S. crop had higher carryout numbers. And all this has depressed wheat prices,” says Burnett.

So what’s the glass half-full story? “Statistics Canada shows our stock levels are down and we have very strong demand,” says Burnett. “So yes, (wheat) prices have gone down, recently hitting a three year low, but I don’t think that’s due to a lack of demand.”

For instance, an ongoing drought in Australia, which is normally a major exporter of wheat, has prompted that country to do something it’s never done before — import Canadian wheat, says Burnett. “Australia has very strict phytosanitary and other import criteria for grains and Canada can meet those demands. There is still a drought there so, to me, that says the spring wheat demand is going to remain relatively strong because Australia is a strong competitor in the south Asian market.”

In other words, not only is Canada selling wheat to Australia, it also has a clearer path to those markets where Australia is a major competitor, explains Burnett. “When Australia’s production recovers, things will go back to normal.”

It all sounds great in terms of ready markets for Canadian wheat, but Burnett cautions a lot still depends on quality. “At the end of July, carryover from last year is 4.6 million tonnes — and that’s wheat, not durum,” he says. “That’s a relatively tight number — anything under five million is tight — so we don’t have a huge amount of good quality carryout stock. In September we’ll be relying on that stockpile to develop export markets.”

THE GIVE AND TAKE OF CORN AND WHEAT

Wheat prices are tied to corn more than we may realize. “Global corn production is over a billion tonnes, so it’s the larger crop in the world,” says Burnett.

“The market has decided that wheat is not as important,” he says. “If you look at the price of wheat without any quality considerations at all, it should be the same as corn. The premium wheat should not go below those values, but wheat prices drop when corn prices drop.”

Burnett says that global corn supplies are projected to be tight this year and that is another contributing factor in lower wheat prices because when corn is scarce, wheat fills in the livestock feed gap.

For example, this year in the U.S., where a lot of the corn crop didn’t get planted due to a poor spring, farmers turned to hard red winter wheat. “Ironically, most of the cattle feeding places are right in the middle of that hard red winter wheat territory, so when it came to sell, the cash price for winter wheat, delivered to a feed yard, was 10 to 25 cents a bushel lower than corn would be at that same elevator.

“The nirvana is if you have tight corn stocks and tight wheat stocks then prices go up — like in 2012,” says Burnett. But that’s not likely this year.

SO, IS IT THE YEAR FOR WHEAT?

Wheat prices have dropped, canola prices have dropped, so what can you plant next year that’s going to make money? Well, it’s going to be a tough decision, but Burnett says wheat is right in there. “I think the wheat demand prospects are important because that will eventually help us out, especially with the drought in Australia.

“I think it’s a good news story,” he says. “Although we’ve seen this increase in production globally, it’s mostly in low- protein winter wheat, which shouldn’t impact our spring wheat markets too much.” FF