Canadian wheat's premium to most origins has risen from earlier this year, as persisting drought in North America and declining stocks in Canada's domestic market, contrasting with expectations of higher output in the Black Sea region, supported the spreads.
Canadian Western Red Spring (CWRS) 13.5pc protein grade wheat prices rose by almost $70/t in a month to peak at a seven-year high of around $340/t fob Vancouver by early May. This was also up by nearly $100/t since the start of Canada's 2020-21 marketing year for wheat in September.
The global rally boosted Black Sea prices at the same time, with Argus-assessed Ukrainian 11.5pc wheat hitting a two-month high of $276/t fob on 10 May. But the rally was far smaller and contrasted with spreads earlier in 2021, when Ukrainian and Russian wheat briefly rose to a premium to Canadian wheat in January.
Canadian wheat prices have since recorded partial losses and the CWRS 13.5pc spot was more recently seen at around $315/t fob. But its Black Sea equivalent has posted steeper declines during the period, with Ukraine's spot fob 11.5pc contract assessed as low as $246/t at yesterday's close.
CWRS has traditionally been a premium product because of its high protein content but the spreads to the Black Sea have not exceeded $50/t since July 2017, when drought pushed the CWRS premium to Ukraine to a record high of around $130/t. CWRS premiums to the Black Sea region were even narrower earlier in the 2020-21 marketing year, sitting in a range of $10-30/t before the rally in April.
Canadian farmers this marketing year have boosted their exports, seeking higher prices in the international markets. Non-durum wheat shipments since the start of 2020-21 totalled 17.16mn t by week 44 ending on 6 June, up from 14.56mn t at the same time a year earlier, Canadian Grain Commission data show. Total wheat exports this year are forecast to reach 21.05mn t, up from 19.08mn t a year earlier, under Agriculture and Agri-Food Canada (AAFC) estimates.
But the rise in exports, outpacing domestic production, implies that Canadian carry-over stocks could hit as low as 4mn t by the end of 2020-21, down from 4.76mn t a year earlier, according to AAFC. This would also be the lowest ending stock level since 2012-13, Statistics Canada data show.
Persisting dry conditions have weighed on soil moisture across the Prairies in Canada and much of the Midwest in the US, raising concerns over crop conditions. Cropland topsoil moisture was rated as 44pc short or very short in Saskatchewan, while just 15.6pc of the surface was in excellent moisture conditions in Alberta earlier this month, surveys from both Canadian provinces show.
Unfavourable weather and low carry-over stocks from this year are expected to weigh on Canadian wheat exports in 2021-22, which are forecast to fall to 17.1mn t for non-durum, under AAFC estimates.
High Canadian prices have prompted buyers of CWRS to seek alternatives. Indonesian millers surveyed by Argus reported that they have partially switched to Australian and Ukrainian wheat in the past few weeks, with most recent Australian container purchases heard at around $334/t cfr Indonesia.
And Japan's agriculture ministry has gradually reduced the share of Canadian wheat in its weekly tenders in favour of US and Australian wheat. The ministry is looking to buy 207,000t of milling wheat this week, including 108,000t from the US, 75,000t from Canada and 24,000t from Australia. On the Canadian side, current international prices were not deemed high enough to encourage exports. The Saskatchewan Wheat Development Commission said in a report earlier this week that it prefers to store wheat "until the supply-demand picture is clearer", as "wheat looks cheap".
