Canada Markets

Despite the logistical challenges faced by the western Canadian industry and the resulting impacts seen in U.S. futures, the USDA increased their forecast for the spring wheat import volume in Monday's report for the fourth time this crop year.

The United States imported 35 million bushels (952,500 mt) of red spring wheat in 2011/12, while importing 43 mb or 1.17 mmt in the 2012/13 crop year. The August World Agricultural Supply and Demand Estimates (WASDE) report started with an estimate of 42 mbu of spring wheat imports, a volume consistent with the previous year. Monday's monthly WASDE report increased the spring wheat imports by a further 15%, or 10 mb, from last month to an estimate of 75 mb (2.04 mmt). The written commentary suggests that western Canada's delivery issues to west coast export facilities has led to increased interest in shipping south.

Despite the call for higher Canadian imports, the ending stocks for HRS in the U.S. was reduced from the January estimate, as both exports and domestic use were increased above the January estimates. In total, the ending stocks for HRS in the U.S are expected to fall 19 mb from January's estimate to 189 mb (5.1 mmt) while the total wheat ending stocks for all classes fell 50 mb to 558 mb (15.2 mmt).

The higher level of imports drew a surprised response south of the border where mills complain about their inability to have purchased grain delivered in a timely fashion due to backlogs. Some reports have gone as far as to suggest that some Canadian delivery contracts in default positions are being cancelled.

The market structure for both the HRS and HRW contracts continue to indicate the challenges the market faces with respect to delivery of product. The March/May HRS spread extended its inverse by 2 3/4 cents this session to 22 3/4 cents, a sign of nearby commercial bullishness as a result of the tight available supplies. The May/July spread traded at a 10 3/4 cent carry (July above the May) at the end of December although closed at a 1/2 cent carry Monday, very close to an inversion, indicating the issues faced in nearby markets are viewed as a growing issue in deferred positions.

Unlike both corn and soybean markets this session, wheat markets ended higher. The three wheat contracts closed between 5 1/4 and 13 1/2 cents higher this session, with market commentary suggesting supply worries.

(ES)

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