The January USDA supply and demand tables included a lower revision in global ending stocks of wheat to 268.02 million metric tons, while the USDA has raised and lowered, raised and lowered this ending stocks estimate each month since the first report was released in May 2017. There is no shortage of wheat in the world; this still remains a record carryout and estimated stocks as a percentage of use is calculated at 36.2%, which represents the fifth annual increase seen for this calculation and the highest seen since 1986/87.
What may be tight is stocks of high protein spring wheat. Analysis reported by the U.S. Wheat Associates points to an estimated 2017/18 global supply of 17 mmt of 2017/18 high protein wheat (minimum 13% protein at a 12% moisture basis) as compared to the average export supply of 27 mmt, or just 63% of normal.
Other media reports highlight the recent cut in Australia's export potential, with the USDA trimming that country's potential by 1.5 mmt to 16 mmt, down 29% or 6.64 mmt from the previous crop year.
Given Canada's high quality crop, the country may be well-positioned to supply high protein wheat to export markets, although the only thing missing at present is the market signals.
Nearby March hard red spring wheat closed 3/4 cents lower on Monday, which compares to an 8 1/4-cent gain for SRW and 10-cent grain for HRW. Old-crop HRS futures spreads closed steady to weaker, with the March/May unchanged at minus 9 1/2 cents while the May/July closed at minus 8 cents, which is 1 1/4 cents weaker than reported on Friday and the weakest spread seen since April 2017. This reflects an increasingly bearish view of market fundamentals held by commercial traders.
The HRS/HRW spread also acts as a proxy which points to a weakening demand for protein. DTN's National Spring Wheat Index/National HRW Index, based on cash market spreads, weekend to $1.95/bushel on Friday, well below the November high of $2.49/bu. (spring wheat over HRW) and the weakest this spread has been reported since late June. Monday's calculation will point to an even weaker spread.
As seen on the attached graphic, PNW railcar bids have resulted in protein spreads that have remained mostly stable over the past two months and for the most part are weaker than seen at the start of this crop year. For example, the current bids reported have resulted in a spread from 13 to 14% protein of $.48/bu. USD on Monday (blue line, based on the spread given the upper-end of the reported daily ranges). This spread was reported at $.53 in early December and at $.66/bu on Aug. 1, or the start of the Canadian crop year.
While Canada's crop was of high quality, total licensed wheat exports as of week 25 or the week ending Jan. 21 was reported at 7.483 mmt, 14% higher than the same period in 2016/17, but only 2.4% higher than the five-year average. In the first 25 weeks, terminal receipts of No. 1 CWRS has accounted for 56.6% of all CWRS volume receipted, while on average over the past four years, this period has seen an average of 33.7% of the unload volume grade as a No. 1 CWRS.
The U.S. Wheat Associates report indicates PNW prices are up 16% in the past year, based on International Grains Council data, while CWRS prices from Vancouver and the St Lawrence are up 24% from a year ago. A further rally may be in the cards, but may require patience as competing global supplies dwindle later in the crop year.
Cliff Jamieson can be reached at email@example.com
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