Wheat Market Outlook

Mercantile says they have rarely seen the world in such a disarray. There are wars/disputes in various regions and strange weather conditions all making price forecasts extremely challenging, according to Mercantile. Futures markets are extremely volatile, but also thin. Meanwhile, there is a heightened sense of awareness in the market regarding the risks to Russian and Ukrainian exports, but there also is cognizance that harvest has arrived in Europe. With grain to be distributed, the market cannot stay paralyzed indefinitely. What is surprising to Mercantile is that buyers have been absent when Black Sea wheat is still cheap (Russian is wheat is ~$237/mt FOB) and given the uncertainties regarding forward logistics. Mercantile worries that financial problems are affecting overall demand, and this might render higher priced north American wheat hard to place. However, as far as Canada is concerned, Mercantile doesn’t suggest any cash sales while current weather conditions prevail.

Mercantile says crops in Canada and Argentina are struggling. India is poised to be a large wheat buyer, and China has been buying significant volumes. According to Mercantile, with this in mind, there are large stocks of wheat in the EU and Russia, and it seems as if credit issues are impacting demand. This lack of demand is an issue and North American wheat is expensive compared to other origins.

The Sask Wheat global market outlook for July 17, 2023.

The Sask Wheat market outlook for July 10, 2023.

It will be a short week with U.S. traders on Holiday. In Mercantile’s view, futures still need some adjustment to line up with cash prices and North American seeded area. In Mercantile’s view, North American prices will not improve much until the New Year unless there is a major weather event.

It’s going to be all about weather, and how the market interprets events in Russia, according to Mercantile. In Mercantile’s view, such abnormal events will cause the futures markets to initially start a little stronger, then fade as the conflict will have no real impact on the overall wheat complex. Global wheat buyers remain uncovered. They are buying hand to mouth and using local crops where possible. Mercantile doesn’t think this will change. Stats Canada’s planting report is out this week. 

Mercantile says demand remains slow as there is little (if any) new business. Black Sea prices remain at a considerable discount to North American future prices. Mercantile says, it is worth noting that funds were big buyers of new crop. The floor price for Russian wheat has dropped and as harvest approaches and storage is tight, we expect their low prices to continue for a few weeks.

According to Mercantile, it was the volume and price of Russian wheat offers to Saudi Arabia and to Egypt at $100 below Hard Red Wheat which took the market lower. The USDA WASDE report added to the weakness with a 10 million tonnes increase in world wheat production and 6 million tonnes increase in world stocks says Mercantile.

With the weather forecasts looking benign, Mercantile expects markets to go slightly lower.  They have two markets: Futures represent the USA market, where growers are holding looking for better prices, and cash markets, which are much lower. Eventually, they must meet, and Mercantile doesn’t see much that will lead cash markets higher for the present. The weather needs to be watched, but at the present weather futures look average to better than the previous year, particularly in Europe says Mercantile. 

Reports Mercantile receives from the country are generally good, but more rain would be liked on the Prairies. Mercantile expects futures a little lower but would hold cash wheat sales for the present.

Mercantile says current weather conditions are benign, and their reports suggest an average to above average global crop is possible. On the demand side, Mercantile believes there are poor local exchange rates and belt tightening keeps demand low. Currently Russian wheat is the cheapest milling wheat and best priced feed grain for many buyers, according to Mercantile. In the meantime, Mercantile expects futures to open initially stronger, but weaker by the end of the week, assuming no weather catastrophe. Mercantile would sell more spring wheat to 50 per cent committed.

Mercantile has not heard of significant cash wheat trades this week and they think world buyers are just about covered on old crop and are waiting before buying new crop at hopefully stronger local currencies. The change in the Russian export tax keeps the Europeans a little more bearish, and Mercantile believes U.S. grains remain expensive compared to other origins. Mercantile expects funds to add to their shorts. - It being a short week, Mercantile would leave markets alone.