Wheat Needs A Friend and It Might As Well Be Me

Lexion wheat Jpeg
This year is a bit of a different winter for me because I have about a third of my acreage sitting out in the ice and snow into wheat.  Last year on the other hand I had 0 acres of wheat and I didn’t really think about it much.  I know there are some of you who still don’t think about wheat, much preferring to roll your dice with soybeans and corn this following year.  It has been said, that wheat has about nine lives.  I hope mine sees the light of day in another six weeks.  It’s been an easy winter after an even easier fall to get planted.  Of course we have to figure out where all of this Ontario wheat is going.

That is an issue for the rest of the world as well.  As all of you know sometimes I get to speak about commodity prices across Canada.  This past Thursday I was speaking about Ontario grain prices in Woodstock Ontario.  Any particular crowd in Ontario always wants to hear about the price of corn and soybeans.  They dominate the countryside in Ontario and generally are much more profitable than wheat on any good day.  So I always relegate wheat to the last and generally I have only one thing to say about it.  There’s a lot of wheat in the world and it is oversupplied.

So when I present I usually put up a picture of the world with wheat heads placed in every production area across the globe.  This means in places like Australia, Russia and Ukraine, Western Europe, Canada, the United States and places in South America.  I know there is wheat grown in India and Bangladesh and Pakistan as well as places in the Middle East, but I think you get the picture.  Wheat is planted and grown almost everywhere in the world except in February.  At least, that is what I heard.  However, I am sure that somebody will change that someday.

So I read with interest this week my DTN colleague Alastair Stewart Argentina crop outlook when he talked about farmers planning to return to wheat.  He said in the article that wheat had fallen out of favor because of some of the domestic policies of the Argentinian government and wheat production had slid to 8.9 million acres in 2015.  However, since the election Argentinian wheat production in 2016 is expected to increase up to 11 or 12 million acres when the start of planting happens in July.  So we’ll have more wheat, which we really don’t need.  However, the Argentinians are going to try to satisfy their traditional market in Brazil.  With Brazil set to undergo negative economic growth in 2016, we’ll see how they get along.

In Canada we have two wheat solitudes, one in Western Canada and one in Eastern Canada.  In Eastern Canada we grow mostly soft winter wheat varieties with about 75000 acres of spring wheat in Ontario.  In Western Canada its mostly hard spring wheat varieties with associated wheat classes, plus Durum, which makes an Eastern analyst weary just thinking about it.  Presently, the Canadian grain commission is reclassifying wheat varieties in the west.  The thrust of this it to make these new wheat classifications more reflective of market realities.  Demand for low gluten wheat varieties is more robust and matching up some of our classifications with our American friends is part of that exercise.

The western reclassification is an important exercise, which will be finished in 2018 and leading up to that time, producers will need to prepare.  However, whatever is done, at the end of the day, there will be more wheat.  Hopefully by that time, we’ll have better market prices.

That will be a tall order, especially with everybody filling in the gaps.  I chuckled this afternoon when I read about a rumour posted on twitter that some producers in the US, Argentina and Brazil were going to “get together” and not produce in an attempt to “raise futures prices.”   It’s such a fallacy, even the thought of that.

That was followed tonight when I was asked by another Ag business executive who stopped me in the hall of a retirement home and asked, what I was going to do about these grain futures prices?  For some reason I get these questions.  So here is the answer, and it pertains to wheat too.  It is going to take a production calamity somewhere in the world to produce the breath of fresh air these agricultural commodity markets need to move higher.  Call it a black swan, or my favourite, that “unexpected Tuesday.”

The problem is, when and if it happens, especially in the wheat market, where wheat is planted everywhere, farmers will quickly move to fill the market vacuum.  I must say I’ll likely be one of them.  I just hope my wheat currently experiencing some real Canadian weather makes it.  Wheat needs a friend and it might as well be me.