Canada Markets

Cash Marketing Still Difficult Despite Surging Demand

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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DTN Contributing Analyst Tregg Cronin wrote an interesting piece titled Headed to the Bread Lines, a realistic view of the potential for wheat markets in light of the panic buying that is widely reported and is pushing the supply chain to perform. "Pictures of empty store shelves around the United States make for good headlines, but long term, very little change is expected for food use either this marketing year or next."

A further reminder of the state of the global wheat markets was seen on Thursday, when the International Grains Council released its March Grain Market Report, forecasting a 2% increase in global wheat area seeded in 2020, combined with a 2% drop in estimated yield, while resulting in a 1% increase in production. Its forecast is for a 5-million-metric-ton increase in production to 768 million metric tons, while global stocks for 2020-21 are set to rise 8 mmt year-over-year to 283 mmt, a fresh record.

While the bearish global situation appears to continue into 2020-21, the recent spike in demand and concerns surrounding the reliability of the supply chain due to the coronavirus fears have shone a spotlight on the agriculture industry. While the industry and provincial governments are conveying the reliability of the food chain to Canadians, they at the same time are urging the federal government to declare the food supply chain an essential service so disruptions to service levels are minimized. At the same time, risks remain in the global supply chain.

A Financial Times piece titled How coronavirus is affecting pasta's complex supply chain, outlines the complexity in moving durum from a farm on the Canadian prairies to a pasta plant in Italy. The example goes on to show truck movement across Europe, a ferry across the channel to United Kingdom warehouses where product is distributed to grocery stores. Potential disruptions are noted at any given border, in production or distribution facilities should staff become sick, at any of the ports involved and across the trucking industry that could affect capacity.

Indeed, there has been a heavy pull of Canadian product this crop year. European Union data shows total imports of 1.4499 mmt of durum as of their week 38, or the week ending March 22. They also report that Canadian imports total 738,514 metric tons for this period, accounting for 50.9% of the EU's total imports, which are up 78% from the same period last crop year.

It is unclear if this data points to an increased imports due to the coronavirus scare. In the most recent week 38, the EU's durum imports totaled 1,692 mt, the smallest weekly volume reported in some time, while the four-week average is 26,901 mt/week, which compares to a four-week average of 92,049 calculated as of their week 31, or seven weeks ago. As of December, the Canadian Grain Commission reported exports to Western Europe total 533,400 mt, up 89.5% year-over-year, well before the coronavirus scare began.

The Financial Times piece included a chart showing the rise in durum prices since January, which they link to the surge in demand seen in recent weeks. Price in Canadian dollars is reported to have increased 8.5% since January, while a quick look at the chart would indicate that prices have increased from roughly $388/mt to $423/mt CAD, or roughly $35/mt, although the location of this pricing is not stated.

While cash bids have firmed on the Prairies, they have not experienced a move of this magnitude. A look at Saskatchewan Agriculture's Market Trends shows the provincial average for No. 1 CWAD increasing 3.3% or $8.90/mt from Jan. 1 to March 25 to $275.66/mt. PDQinfo.ca reported the average bid for southwest Saskatchewan (NO. 1 CWAD 13% protein) increasing by 1.6% or $4.42/mt over this period to $277.71/mt, while the same report shows a gain of 5% or $14.04/mt in the average price reported for southeast Saskatchewan at $292.09/mt.

While no one knows how long the consumer buying frenzy will continue and how secure global supply chains are from interruptions, increased transparency is the key in positioning Canadian producers to help make better marketing decisions.

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Cliff Jamieson can be reached at cliff.jamieson@dtn.com

Follow him on Twitter @Cliff Jamieson

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Philip Shaw
3/26/2020 | 5:53 PM CDT
Western Canada always has the worst basis levels in North America, that's what marketing freedom got them...huge basis moves in cash grains in Ontario and Quebec this week