A harsh realization that US wheat is too expensive
To qualify and not to offend any producers, U.S. wheat is too expensive to be competitive for exports. The entire 2018-19 crop year has been plagued by this issue.
Supplies in the U.S. and Canada were pretty comfortable, if a bit tighter than the previous years. Globally however, there were production shortfalls that really took stocks lower after a worldwide glut of wheat in 2017. Europe had a variety of growing-season weather problems, Russia did not hit lofty output expectations and Australia was in the midst of two consecutive years of horrible drought in the western part of the country.
With that shortfall and good supplies domestically, the expectation was for export demand to shift to the U.S. But the start of the new crop year saw an aggressive effort by Russia to keep prices low and ship as much wheat as possible, as soon as possible.
Recall the days in the fall when rumors of Russia running out of wheat lent support, only to be refuted by the Russian Agriculture Ministry and sales continued. Finally, at the end of calendar year 2018 and in the beginning of 2019, Russian sales slowed. This was during the U.S. government shutdown that left export sales of U.S. commodities unreported. So the assumption was that demand would shift back to the U.S. and it would be "our turn" so to speak. Now was when sales would catch up to the U.S. Department of Agriculture's (and the market's) expectations for exports.
That did not happen as expected, though. Once a couple of weeks ago and again this week, Egypt's government grain buying group issued a tender for wheat exports and France took most or all of the business and the U.S. was too expensive. Simple economics tells us that prices have to come down to meet demand, as current levels price the U.S. out of the market.
Wheat markets took a dip mid-week with Chicago and Kansas City futures falling to life-of-contract lows. Pressure was too much for the technical support that had held in place since November. As mentioned earlier, an uncompetitive price on the global market as Egypt was seeking wheat left traders stunned and prices were hammered Wednesday as a result.
In the short term, look for export sales data to provide direction, but the market should see additional pressure from current levels.
Longer term, look at weather as the winter crop emerges from dormancy and spring planting approaches.
Durum prices have remained very low over the last several months. Supplies are comfortable and demand has been weak. Pressure on the broader wheat market is not going to help get durum prices going.
Producers have to hope for some excitement during the growing season to get the market off of these low levels.
The canola market has fallen to a new low, with pressure coming from a lack of demand. Trade war brought with it an expectation of a large shift in demand and higher prices, but demand did not increase as expected. Many users shifted to other oils and oilseeds, leaving canola to steadily fall from the fall.
The soybean oil market is climbing, and crude oil markets have pushed to their highest mark in several months. But canola is languishing, trying to coax buyers away from other oilseeds.
Pulse export demand has picked up for Canadian supply in November. The Canadian Grains Commission reported 161,700 thousand metric tons of field peas loaded for export, bringing total loadings to 853,900 metric tons for the marketing year. This is down 10 percent from a year ago at this time, but shows a 62 percent bump from the previous month and 148 percent above the same month in the previous marketing year. The Canadian Grains Commission also confirmed strong demand for lentils, with exports loaded totaling 192,100 thousand metric tons for the marketing year to date, compared with 114,600 at the same time a year ago.
Mustard seed prices have been steady over the last few weeks. Little buying interest has held price offers steady. The only real move was seen in a lower grower bid in the U.S., but this had less to do with mustard seed fundamentals, and more to do with a firmer Canadian dollar.