In my last column, I wrote about how world wheat markets are being affected by Russia’s invasion of Ukraine and the Prairie weather outlook and planting conditions. In this column, written on April 6, I’d like to look at the overall wheat outlook. As I mentioned in my last column, generally, wheat prices have strengthened since the outbreak of war.
However, according to Bruce Burnett, MarketsFarm director of weather and market information, market spreads make no sense at the moment, as U.S. spring wheat is trading at a discount to winter wheat in both Chicago and Kansas City markets. This, despite the drought last year and tight ending stocks in both Canada and the United States.
“Once the market starts to realize this, we should see either a drop-off in the Kansas City cash markets or an increase in the spring wheat markets here,” says Burnett.
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Major exporter wheat production in 2022 is expected to increase by only two million tonnes. “That’s mostly on the back of Canadian production increasing from last year,” adds Burnett.
The decreases in production in Ukraine will more than offset increases in Europe and Canada this year.
Major exporter wheat ending stocks in 2022 is expected to decrease by two million tonnes to 51 million tonnes, which is the lowest level since the 2012-13 crop year. “So, we’re going to be even tighter in the exporters next year. This is using a pretty optimistic production scenario for the world.”
Major exporter wheat shipments will decrease by a minimum of 12 million tonnes due to restrictions on Black Sea exports. “That’s definitely going to put Canada in favour, especially when it comes to supplying high-quality wheat in the upcoming year,” says Burnett.
Durum prices have weakened since early February but should pick up now that the St. Lawrence Seaway has opened. In the Mediterranean, smaller crops are expected in Morocco and Algeria due to unfavourable weather conditions. However, Tunisian durum production is expected to remain similar to last year.
North Africa durum production in the three major importers (Algeria, Tunisia and Morocco) is forecast to reach only 4.0 million tonnes. This is the smallest production level since 2016. “This should be supportive of the durum market,” says Burnett. With stressed new crop conditions in the Mediterranean, the world is still short of durum, he adds.
The durum production area in North America is likely to increase this spring on both sides of the border. However, at the time of writing, moisture is the biggest concern in western North Dakota, Montana and the southern Prairies.
Although, as mentioned above, the price of durum dropped off in February, when exports pick up those prices will move back up, says Burnett, which favours durum seeding, especially in areas with better moisture in Western Canada.
In conclusion, MarketsFarm is still projecting a decrease in Canadian spring wheat area with plantings down 300,000 acres from last year to 16.2 million acres — mostly in the northern growing areas where there is better moisture for starting off canola crops.
Durum area is expected to be up 400,000 acres to 5.93 million acres, says Burnett. Moisture levels are the largest concern for the 2022 crop.
The total wheat area is expected to be similar to last year. “I don’t see wheat area increasing substantially for a number of reasons, the biggest of which is that every crop appears to be profitable this year,” he says.
Finally, winter wheat concerns, globally, are focused on the U.S. hard red winter wheat crop. “Basically, right now, it appears as if Australia’s got enough for planting next year’s crop (in terms of) moisture. South America is seeing improved moisture, so Argentina should be able to plant some more wheat. European conditions are good. Keeping an eye on the U.S. HRW crop is probably the most critical crop.”
There is enormous focus on cereals at this time because of Russia’s war on Ukraine. Although cereals and the strong pricing outlook are getting a lot of attention, this doesn’t mean your planting intentions should shift. Rather, focus on what crops are the best fit for your farm and your bottom line.
Also, there are a lot of variables in play this year — rising input costs, supply chain disruptions, soil moisture, to name a few — adhering to your long-term goals set out in your farm business plan should help you manage risk.
All the best for Plant 2022!
Kari
