“Many factors affect wheat markets, but supply and demand are the major price drivers,” explains Blue. “From a global perspective, there is currently plenty of wheat, and price has generally been reflecting that.”
The graph below shows global production and usage over the last 10 years and a projection for 2020-21.
He adds that during 2013 through 2017, global wheat production greatly exceeded usage. It led to an increasing world wheat inventory as shown in Figure 2.
“U.S. wheat futures, adjusted for exchange rate, provide the background for Canadian wheat prices. Figure 3 shows that wheat prices, with the brief exception of a weather-related price rally in 2017, have been subdued for the past few years by the large supplies and competitive market.”
Source: Barchart.com, MGEX
Blue notes that similarly, Central Alberta milling wheat prices have been mediocre, other than the price blip to $300 per tonne - just over $8 per bushel - during 2017.
Source: A&F survey
“So, despite dryness in Europe reducing prospective wheat production below last year’s levels there, with world inventory near record levels, the market is challenged to convince buyers to increase their forward pricing.”
Blue says that there are potentially supportive factors for the wheat market.
“Increased flour demand induced by COVID-19 factors did provide some price stability. Although total Canadian wheat exports this crop year are lower than year ago, U.S. wheat export sales are higher than last year and higher than the 5-year average. Reduced competition is expected from Ukraine and Russia next crop year. Speculators are in a net sell position in the U.S. futures market. The implication of that is, with a weather-induced price catalyst, those speculators would cover their positions by buying. That may provide a much sought after pricing opportunity for wheat producers.”
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