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Positives and negatives both loom in cereal outlook

CNS Canada — There was a mix of good and bad from two senior market analysts when it came to their outlook for cereal crops.

Jonathon Driedger and Neil Townsend, both with FarmLink Marketing Solutions, gave their thoughts about the global markets for wheat, durum, feed barley and oats Wednesday at the Grain World conference in Winnipeg.

Citing numbers from the U.S. Department of Agriculture, Townsend said about 734 million tonnes of wheat were produced globally this year, down 30 million from 2017.

This is a positive for prices, he said, as world consumption has been increasing by 1.5 to two per cent per year, leading to greater demand.

“The distribution this year is somewhat favourable in the sense most of the eight major exporting countries are going to be running down their stocks a little bit,” Townsend said.

The U.S. has become the world’s residual for wheat, filling in the holes left by other suppliers such as those in Europe and Asia, Driedger commented.

“The rising prominence of Russia, Ukraine, Kazakhstan and some of these other countries in terms of world wheat export markets, obviously they have taken larger chunks of that market share,” he said.

Townsend said Canada “should be faring pretty good” with its wheat exports (excluding durum) at 18.5 million tonnes according to FarmLink estimates, which he said was one of the bigger amounts in the last five years.

The Russians, he stated, “have kind of blown their brains out” with the speed they ship their exports even though their production is down.

“I wouldn’t sit here and say a 70 million (tonne) crop is a disappointment for the Russians, but it’s not what they did last year. It’s down by about 15 million tonnes. They have been exporting like they have the same kind of supply,” Townsend said.

This should result in Russian exports not being very active from December onward, he added.

Australia’s wheat crop will be small, he said, given the country is contending with a drought and this could generate buying interest for Canadian wheat.

Driedger said Canada’s wheat crop held up very well this year quality- and quantity-wise under difficult growing conditions, “certainly nothing near the disaster that was potentially feared for that wheat left out in the field,” he said.

For 2019, Driedger expects there will be more spring wheat seeded in Western Canada, especially with the new varieties.

“Their really impressive yields and their quality attributes are such that you don’t get that much of a discount,” he said.

As for prices, Driedger said the wheat futures are currently heavy.

“It’s like everybody is waiting and waiting for this export volume that’s not showing up. Somewhere along the line we have a lot of catching up to do and the longer we have catching up to do, the narrower that window is to kind of make up those volumes,” he said, and expects any improvement for producers could come on the basis side.

Next up was durum, which Townsend said is suffering from supply and demand issues. He said there hasn’t been a lot of expansion of the world durum market, resulting in the demand for it being flat while too many acres are used for durum production.

“Through 14 weeks, according to the Canadian Grain Commission, we’ve exported 841,000 tonnes of durum. That’s down 19 per cent year on year and the five-year average is almost 300,000 tonnes higher,” he commented.

One opportunity to increase exports, Townsend said, would be the feed market.

“It’s not the opportunity you want when you’re sitting on a lot of No. 1,” he said.

Townsend noted wheat prices in the U.S. have nosedived and producers are hanging onto their durum hoping for better prices in the future.

Townsend said Saudi Arabia is the dominant barley buyer, especially for feed. Despite barley production being down in Canada, so was barley production in Europe and along the Black Sea region; that, he said, could benefit Canada.

There could be opportunities for feed barley and feed wheat in Western Canada and perhaps Australia, Driedger said. Should these occur, he said they could lead to improvements in prices.

Townsend also pointed to Canadian oats, which, despite challenges imposed by the weather, still turned out pretty good. In Europe, oats didn’t fare as well.

He noted Canada doesn’t have phyto clearance with China for oats, and it should be something to acquire as the Chinese market is quickly growing.

“Of the food sectors in China that are expanding, the fastest are the convenience cereal (and) the convenience meal you can eat when you’re commuting on the subway,” he said.

— Glen Hallick writes for Commodity News Service Canada, a Glacier FarmMedia company specializing in grain and commodity reporting.

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