Steve Kell’s
Market Minute
One of the really interesting things about the fall of 2022 has been how good the weather was for harvesting beans, (both edibles, and soys), and replanting those fields into winter wheat.
Field conditions were so good in late September and early October that it appears that more than 1 million acres of winter wheat have been planted this fall. Nearly double the 584,000 acres planted one year earlier.
The question this raises for Ontario wheat producers in the face of such a substantial change in supply, is how do we adjust the marketing strategy in the face of a crop which might be twice as big as last year’s?
For some reason, Ontario farmers love to grow winter wheat. If the fall weather permits planting, Ontario sows about 15 % of this province’s field crop acres into winter wheat. (In very general terms it is 1 million acres of wheat, 2 million acres of corn, and 3 million acres of soybeans).
By comparison, Illinois grows 11 million acres of corn, 10 million acres of soybeans, and about 600,000 acres of wheat. It represents about 2.7 % of the state’s field crop acreage, and is concentrated heavily in southern Illinois where many of the wheat acres are double cropped into soybeans.
I’m not certain why Ontario producers have much more of an inclination to grow wheat than our neighbours in nearby American states, but let’s attribute it to Peter Johnson whether that’s the real reason or not.
Ontario has grown this much winter wheat before. In fact we’ve done it quite recently. The fall of 2020 was very good for wheat planting and resulted in about 1.1 million acres being seeded, and 1.03 million insured acres being harvested in the summer of 2021.
The fact of the matter is that the world supply and demand balance sheet for wheat do not have to react to the size of the Ontario crop.
The United States produces a little more than 10 million tonnes of soft red wheat annually. France produces more than 33 million tonnes of soft red wheat each year. World prices do not need to react to whether Ontario grows 1 or 2 million tonnes of winter wheat, so don’t wait for global markets to react to our crop.
Where we will see prices react to Ontario’s wheat volume is local basis bids as elevators and end users stretch to accommodate a glut in supply and alternate end uses appear in order to consume the surge.
The key marketing difference for Ontario producers between one of the big crop years like 2021, and the size of crop which we dealt with this year, is that the supply of wheat will overwhelm domestic flour milling demand.
As wheat producers in the Great Lakes basin, we are fortunate to have a group of flour mills in this province which combine to represent about 550,000 tonnes of demand, the largest soft wheat mill in North America, just a short trip away in Toledo, and reasonably good access to other flour mills in Michigan, Buffalo, and Montreal. However, once the domestic milling demand is filled, we’re left with feed and exports to consume the balance of the crop.
While there is always a certain amount of wheat used in feed formulations, to really increase its volume of usage, the price of wheat has to get very close to the value of corn. At this point the value spread between 2023 crop wheat and 2023 crop corn is about $90 per tonne, (with July ’23 wheat being a $90 premium to November ’23 corn).
Obviously, the price of both commodities are going to continue to fluctuate over the next 10 months, and the spreads will change every day, but if eastern Canada is going to feed its way through a harvest glut in wheat supplies, prices would have to back off quite a bit.
Due to the small size of Ontario’s 2022 winter wheat crop, we did not see a great deal of exports of wheat from harvest through into the early fall.
The fact of the matter is that we didn’t have a big enough supply to need to move any out, and domestic prices stayed high enough to ensure that not very much of the crop exited into the salt water vessel markets.
The summer and fall of 2023 should be substantially different.
The global marketplace is easily big enough to absorb Ontario’s extra production expected in 2023. Our challenge is that Ontario soft wheats are of a rather peculiar quality.
Protein levels on our soft red wheat are typically under 10 %, and it would take an optimistic exporter to guarantee much more than a 300 falling number. It’s a bit like having a Belarus in a dealer’s lot full of John Deere tractors. It’s not impossible to sell it, but the price is going to need to be reflective of the value.
The wheat producers who are under the most pressure to develop a marketing strategy for their 2023 winter wheat crop are the ones who plan on selling wheat at harvest time or in the early fall. That’s the period of the marketing year when the need to move grain in order to re-cycle elevator storage space is highest, and since both flour and feed mills want to grid at essentially the same speed for the entire year it is a time when prices can get soft or required movement can be hard to get.
The good news is that we’ve already come through a period with new crop wheat bids at Ontario elevators have been in the $10.60 to $10.90 range, which is an historically high place to start making sales.
There’s also an ongoing flow of news headlines out of Ukraine which have on occasion sent wheat futures prices moving, and without a doubt there will be a weather rally in wheat prices in February and March as markets react to ice and flooding on US winter wheat fields.
We are not at the end of the price rallies which could create an opportunity for Ontario farmers to get started pricing 2023 crop wheat, but if your strategy is “oh I’ll get it on the next rally,” that could turn out to be a costly mistake.
Steve Kell is a Simcoe County crop farmer and handles grain merchandizing for Kell Grain, with elevators in Belleville and Gilford.
