War time has proved challenging for commodity traders, especially when it comes to wheat when two of the largest exporters in the world are at war with each other. University of Illinois agricultural economist Scott Irwin tweeted yesterday that "I am convinced it is going to be the biggest supply shock to global grain markets in my lifetime."
On March 2, DTN's national average basis levels for wheat shows a 35-cent weakening in the national average soft red winter basis, while hard red winter wheat strengthened 7 cents and hard red spring wheat strengthened 9 cents, showing no clear direction. Since Russia's leader gave the order to use force on Ukraine, the national average SRW basis has weakened 24 cents, HRW has weakened 10 cents and HRS has weakened 8 cents, all in USD.
There are expectations that the first stop for global wheat buyers will be in the European Union, with Paris milling wheat reaching all-time highs this week. Immediate signals of interest in North American supplies remain lacking.
The attached chart shows the trend in No. 1 Canada Prairie Spring Wheat 11.5% protein for the northern Alberta region since Feb. 1 (blue line), as reported by pdqinfo.ca. This price started the period at $401.03/metric ton, while was reported at $454.41/mt on March 2, a jump of $53.38/mt.
The brown line represents the May Kansas City hard red winter future over this period, converted to Canadian dollars using the spot Canadian dollar reported by ProphetX. Over this same period, the future gained $105.08/mt USD or $131.56/mt CAD.
As can be seen on the attached chart, on Feb. 24, or the first few days of the war between Russia and Ukraine, the cash basis moved from a positive number, or cash trading above the future, to a negative basis, with cash trading under the future, when converted to Canadian dollars.
During the period shown, the strongest basis was seen on Feb. 9 at $38.07 over the May KC future, while on March 2, this is calculated at $45.44/mt under.
A similar chart was created for No. 1 CWRS 13.5% in the northwest Saskatchewan region, where cash bids and the future traded at close to even money from Feb. 1 through Feb. 18, roughly $3/mt under the future to $3/mt over, while basis has since weakened, reported at $26.49/mt under on March 2.
While these trends are of interest, all posted bids should be treated as an indication only; when companies are in need, their customers will see more attractive offers, especially when supplies are tight as they currently are.
Cliff Jamieson can be reached at email@example.com
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