Canada's planting delays - Game changer?
Two weeks ago, the word was that Canada's producers would likely not plant up to 1 million acres of wheat due to record rainfall this spring that has kept producers way behind in their fieldwork. Today, the Canadian Wheat Board issued a report that projected about 3 million acres of wheat would not get planted. On top of that, barley would lose up to 1.7 million acres, and other crops would lose up to another 7 million acres. According the CWB, anywhere from 8.25 - 12.5 million acres may not get planted this spring. Now that is a much different story, to say the least!
Just losing that many acres from a major wheat exporter is a big deal. But, not only is Canada a major wheat exporter, they are a major quality wheat exporter. And in a year when the shortage of quality wheat is already making headlines, this becomes a very big deal. With disappointing protein coming from the southern Plains harvest and the wet conditions across the northern Prairies, the odds of another low protein wheat crop this year are increasing daily.
USDA released the June supply/demand report, with a bullish surprise for the corn market. Ethanol grind was increased both this marketing year and next, taking ending stocks down for both years, and dropping the estimate for '10/11 by 245 million bushels to1.573 billion bushels. Corn production was pegged at a record high 13.37 billion bushels, but consumption was estimated even above that, which means that even if we get ideal weather, it's still not enough to meet demand.
You have to wonder then, why would corn go down at all from here? Particularly with virtually no weather premium built into the market? And with so much wheat going into the feed channel lately, if corn has bottomed, could we consider that wheat has bottomed as well? Okay, if the economy continues to falter and energies go down, then corn will likely follow energy lower to some degree.
USDA did raise old crop wheat exports by 20 million bushels, don't know why but they did; and ending stocks were also lowered by 20 million. New crop production was raised by 24 million, mostly from hard red winter which was a surprise to the trade who have been watching disappointing yields in the plains. Exports for this new marketing year still sit at 900 million bushels, which is another 15 million above this year's hard-fought for 885. With the stronger dollar and plenty of competition, that might be hard to achieve.
Seasonally, wheat prices tend to carve out a low when the combines are rolling through the heart of Kansas, which this year should be in the next week or two. That said, when you look at the charts and see a key reversal up on Friday in KC and Minn, and weekly reversals up in all three wheat markets, you could make a strong argument that maybe we've just seen the seasonal low.
Coming into this harvest wheat didn't have much of a story. Now suddenly, it could have a couple of stories that pull this market out of its stupor. The planting problems in Canada could indeed be a game changer, especially for the quality wheat. In addition, weather forecasts suggest heavy rains over harvest country next week, which could lower quality even more. And the corn statistics are also very supportive for wheat. Indeed, corn could be the saving grace for the low quality wheat; if corn production gets into trouble, wheat will quickly be substituted. Huge corn demand couldn't come at a better time for wheat.