GrainsWest Fall 2017

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BY JON DRIEDGER
Wheatworld
WHEAT PRICES HAVE EXPERIENCED
quite a ride between spring and fall.
There was a sharp rally in late June and
early July as markets focused on the dry
conditions in the northern plains of the
U.S. and the southern prairies. Some
concerns over the European crop, dryness
in Australia and potential imperfections
in other regions added further support,
together with some strength in corn and
soybean markets.
However, prices gave up all of their
gains and then some over the next six
weeks. While the North American
spring wheat crop was pointing toward a
tightness of supplies, the uncertainty of
the production outcome eased as harvest
got underway, and the U.S. Department
of Agriculture posted larger estimates
than the trade was looking for. In the
meantime, conditions improved in other
regions, including bin-busting expecta-
tions for Russia. The end result is a global
crop that may only fall slightly behind last
year’s record volume, while the projected
ending stocks look to post an all-time high
at the end of the crop year. In other words,
the alarm that was raised in mid-summer
succumbed to the reality that the world
will be awash in wheat once again. The
result is Chicago and Kansas City futures
prices trading back down to 10-year lows.
With the ebb and flow of the market
and the stream of information regarding
crop conditions, we are reminded again
that when it comes to marketing wheat,
not all wheat is the same. The huge
global stockpile of wheat means that
a sharp and sustained increase in the
wider wheat complex seems unlikely in
the foreseeable future. However, supplies
of high-quality, high-protein wheat are
short, and demand for this type of wheat
is quite inelastic. This means that there
is the potential for prices to be supported
within a heavier price environment for
wheat as a whole. This is why the Min-
neapolis Hard Red Spring Wheat futures
prices continue to hold a sizable premi-
um compared to the other markets, even
if they, too, have pulled well back from
their early summer peak.
Farmers need to keep these dynamics
in mind when making selling decisions
on this year’s harvest. Representative and
accurate samples are absolutely criti-
cal. Shop those samples around widely,
including to buyers whom you might not
have traditionally sold to in the past. The
shortage of high-quality wheat means
that good selling opportunities will arise
during the year if the protein and grade
are there. However, these premiums may
only be available from specific buyers,
and will likely hinge on the sample meet-
ing specific requirements. Markets often
work through supply shortages through
basis premiums and cash market spe-
cials, rather than a widespread structural
strength in values. The opportunities
may also be somewhat fleeting, so having
the samples in ahead of time will be
important.
The effects on prices for the 2018/19
marketing year need to be kept in mind
as well. In particular, one has to be care-
ful not to make seeding decisions based
on marketing last year’s crop. In other
words, the fundamentals for the upcom-
ing crop year will look different than
what is driving prices today. While there
is a shortage of high-quality spring wheat
today, that may not be the case next year
if seeded area increases on the northern
plains and Canadian Prairies at the same
time that yields improve and quality
remains high. Demand for high-quality
wheat is quite inelastic, but it’s also a
very small segment of wider global wheat
consumption. As a result, we are one
good harvest away from satisfying that
demand and forcing premiums lower.
That’s not to suggest that farmers should
shy away from planting spring wheat.
Rather, it’s important to make sure that
decisions are based on a realistic outlook,
rather than driving while looking in the
rear-view mirror.
The wheat market is incredibly dynam-
ic. It can also be frustrating for farmers
trying to make marketing decisions.
While you can’t control what the wider
market does, you can help yourself by
ensuring that you have accurate samples
in the hands of a wide range of buyers and
by keeping a close eye on local premium
selling opportunities.
Jon Driedger is a senior market analyst
with FarmLink Marketing Solutions.
WHEN IT COMES TOMARKETING, NOT ALLWHEAT IS EQUAL
MARKET MONITOR
Fall 2017 45