Both May spring wheat and December spring wheat futures reached fresh contract lows Thursday's session. A look at the action in the May/July and December/March futures spreads shows a sudden change in commercial sentiment since March 25, with the old-crop spread moving from a 3 1/2 cent inverse on March 25 to a 9 1/4 cent carry as of the April 4 close.
This move -- which saw the nearby May contract fall from a high of $5.76 3/4/bu on March 22 to Thursday's close of $5.27 1/4/bu, a move of 49 1/2 cents -- is viewed as perplexing on a year when United States wheat acres are estimated to be the lowest on record and soft red winter prices could find support from more rain in the Midwest forecast.
One concern that may be weighing on trade is the exclusion of the United States in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership deal, with Canada and Australia having the upper hand in trade with Japan, an advantage that gained further traction on April 1 with Japan further reducing tariffs for CPTPP countries. It will be some time before Canada's April data will be available to see any potential shifts in demand, while this advantage may not last long with U.S. and Japan trade officials set to meet this month.
The attached graphic highlights the year-over-year change in Prairie producer deliveries of wheat into licensed facilities as compared to the year-over-year change in canola deliveries. As of week 34 or the week ended March 24, producers have delivered 2.4 million metric tons of wheat more than delivered in the same period of 2017-18. This is shown by the spread between the upper blue line and the lower orange line.
Over this same period, producers delivered 827,900 mt less canola when compared to the same period in 2017-18, which is shown in the spread between the yellow line and the lower black line. Sagging demand and lower prices faced in the canola market due to the trade impasse with China have led to a greater reliance on wheat as a means of meeting cash flow needs up to week 34, which may act as a bearish influence on the wheat market overall.
This trend may continue, with three released forecasts showing Canada's new-crop wheat acres increasing from 7% to 10% from 2018 levels, while indications indicate canola acres could fall by 5% to 15% from 2018 levels.
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Cliff Jamieson can be reached at firstname.lastname@example.org
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