Steve Kell’s
Market Minute
2022 promises to be another really interesting year in the grain markets. In particular, Ontario’s winter wheat crop has all of the makings for a turbulent price cycle in the months ahead.
The biggest factor influencing the wheat market this winter is the fact that last fall’s wheat weather really limited winter wheat planting. The best current estimates put Ontario’s 2022 planted winter wheat at 585,000 acres. That’s essentially half of the 2021 acreage. It doesn’t take a Harvard economics degree to know that if we swing from 2021’s near record sized Ontario wheat crop to 2022’s crop potentially half as big, (and we haven’t even gotten to the weather that causes winter-kill), the marketplace and the price both have to react. As the market reacted to the low seeded area news through the month of November, Ontario wheat producers saw new crop prices bounce up nearly 20% touching a high of $10/bu as buyers scrambled to cover some wheat and farmers with few acres planted made very reluctant sellers.
Even with these much smaller seeded acreage for the 2022 crop, Ontario should be able to produce more than enough soft wheat to meet the domestic milling demand. Even if we only harvest 575,000 acres of wheat, it would still be 1.3 million tonnes of supply into a province where flour miller’s grind about 550,000 tonnes. However, Ontario farmers also supply winter wheat to mills in Quebec, Michigan, Ohio, and New York. While there is theoretically enough 2022 crop wheat in order to meet demand, the domestic flour mills are going to need to bid a high enough price that essentially none of it leaves.
Although last year’s winter wheat crop was a record volume harvest, the wheat which is still in storage is in astonishingly tight hands. That appears to be at least in part due to some quality issues with last summer’s crop having unusually low falling numbers in at least some areas of the Great Lakes basin, and sellers being more than a bit reluctant to try to move it. The consensus view amongst wheat sellers appears to be that either price is going to be high enough to absorb some grade discounts and still net out to a reasonable price, or that it’s going to be carried forward into 2022’s expected small harvest, and then blended out with the new crop supply.
One of the key things to bear in mind if part of your marketing plan for the 2021 crop stocks in the bin is to mix it in with 2022 crop when shipping it. Falling number does not improve in storage, and a baker’s quality expectations can only bend so far.
Everyone is no doubt familiar with a product like Breton Crackers. There are two important things to keep in mind, the first is that every Breton cracker you’ve ever seen is exactly the same, and the second thing is that there is only about a cent worth of wheat in a box of crackers. If a brand marketer had to pay twice as much for wheat in order to get the quality that they wanted, that two cents wouldn’t really impact the price of a box of crackers. Any cost saving on flour wouldn’t overpower the damage to the brand if a consumer’s box of crackers turned into a box of crumbs.
To be fair, there are uses for wheat which has falling number issues. Products like the breading for chicken nuggets or gravy thickener, require a lot lower falling number wheat than Wonder Bread. The domestic millers have bent their quality standards a bit in order to accommodate at least the borderline portion of the 2021 crop. They are not going to put their falling number testing equipment away at the start of the 2022 harvest, and if your plan is to blend out last year’s problem it’s going to require a great deal of care in order to do it effectively.
One fairly consistent pattern across Ontario is that producers have typically forward contracted a significant portion of their production. The unique thing about this year’s situation is that if a producer has sold 50% of his expected wheat production and then the weather prevents him from planting half of his acres, the price is going to have to move a long way in order to draw out any increased volume of sales. This market is primed to make significant swings, especially in the weeks ahead when ice and flooding threatens a small crop’s survival.
We’re about to watch a price chart that looks like the blueprints for a midway ride.
Steve Kell operates a crop farm in Simcoe County and is a former grain merchant for Parrish and Heimbecker Ltd.
