WESTERN PRODUCER — Wheat is finally becoming a “sexy” crop after years of being the ugly duckling, says an analyst.
Stephen Nicholson, global grains and oilseeds strategist for Rabobank, said a series of supply side threats is making things exciting.
Canada’s crops are withering in the fields. MarketsFarm is forecasting 30.4 million tonnes of all wheat production, well below the U.S. Department of Agriculture’s latest prediction of 35 million tonnes.
The U.S. winter wheat crop was a disappointment, and the country’s spring wheat crop is suffering through dry conditions.
Argentina recently harvested a terrible crop and the new one is off to a rough start.
Conditions initially looked good in the European Union, but it turned hot and dry, and yields are shrinking.
“Australia is going to have a pedestrian crop this year,” he said during an interview at the Ag in Motion show near Langham, Sask.
El Nino could be wreaking havoc in India and Southeast Asia and China has quality problems due to harvest rains.
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“You have to draw the conclusion that maybe the wheat crop is not going to be as big as everyone thinks it is going to be,” said Nicholson.
That is the exact conclusion being drawn by MarketsFarm analyst Bruce Burnett.
He noted during his AIM market outlook presentation that the USDA is forecasting 54.7 million tonnes of wheat ending stocks for the world’s major exporters in 2023-24.
That is a 4.5 million tonnes lower than last year.
However, Burnett feels the USDA’s production numbers are five million tonnes too high for Canada and three to four million tonnes overstated for Australia.
Argentina’s new crop is off to a poor start, while the USDA is forecasting a big rebound for that country.
“The market is reacting like there’s tons of wheat around and it doesn’t matter,” he said.
“But really, the situation is becoming very, very tight and it won’t take too much to tip it over.”
Nicholson said he would be getting antsy if he was a flour buyer because the milling wheat crops are in trouble in North America.
They can take some solace in the fact that the U.S. hard red winter wheat crop was averaging 13.2 percent protein as of July 14, which is above average.
However, due to the small HRWW crop, there will be a need to blend more spring wheat and it could be hard to find.
Burnett said the USDA is forecasting 11 million tonnes of Ukrainian wheat exports in 2023-24, but that seems doubtful now that Russia has backed out of the Black Sea Grain Initiative.
“There is limited opportunity to export via other channels,” he said.
Ukraine can move grain through the Baltic Sea via Poland or through Romania’s Black Sea ports.
However, those countries have bigger crops and are not interested in moving Ukrainian wheat through their ports.
Burnett believes Ukraine’s exports will fall two to three million tonnes short of the USDA’s forecast.
“If we get into a real missile-flying thing, it might knock out all their abilities to export,” he said.
Ukraine could also start targeting Russia’s ports, which could hamper that country’s ability to ship wheat around the world.
“The wheat market has not been pricing in any of the risks associated with this,” said Burnett.
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