OPINION: Make money on wheat before supplies increase sharply

One of the most interesting things about the eastern Canadian wheat market is that we are consistently a high-priced island in a sea of soft wheat markets around the world. 2019’s relatively small Ontario wheat crop is certain to entrench this position for the balance of the old crop marketing year. But as we look forward to contracting 2020 sales, are things about to change?

Last year was something of a perfect storm for tightening eastern Canadian wheat supplies. The fall of 2018’s weather was not conducive to getting winter wheat planted, and tough spring conditions resulted in a significant amount of winterkill. But then we moved into the summer’s harvest and a feed industry, which was motivated to find a safe alternative to high DON corn, moved quickly to utilize more wheat as it became available. Farmers enjoyed the consequences of making wheat sales into a shrunken supply and increased demand marketplace for the past four months. However, it’s entirely unlikely that we will be able to carry the same momentum into the next marketing year.

Winter wheat seeding for the fall of 2019 is back up. Although we have yet to reach the planting deadline prior to press time, it would appear that Ontario growers are on track to plant about 1 million acres of wheat this fall, and much of it has been sown into field conditions which are better than the previous year. Although it’s too early to talk about winter-kill, it is reasonable to assume that Ontario’s 2020 winter wheat crop could be nearly twice as big as the 2019 production.

Flour milling demand is fairly static. This means that any growth in wheat demand which might consume the increased production will need to come from either livestock feed or exports. Traditionally, feed has been the biggest market for Ontario’s winter wheat crop. However horrible harvest time weather in the Canadian prairies this fall, with rain and snow falling on ripe wheat, has had a devastating impact on grain quality, and a significant portion of the prairie’s 30 million tonne 2019 wheat crop will be downgraded to feed.

Considering that Ontario only produced about 1.5 million tonnes of wheat in 2019, if only 10 % to 15 % of the prairie crop is feed, it’s still enough volume to impact eastern Canadian markets.

Ontario’s key markets for wheat exports are really just the nearby U.S. states: Ohio, Michigan, and New York. Those areas grow similar wheat to the crop which we produce, and their flour mills consume wheat that’s in our quality bracket. Mills, like Toledo, have been a consistent source of demand for Ontario wheat for decades. But with wheat plantings up significantly in those U.S. states as well this fall, don’t wait for U.S. millers to drive Ontario prices higher as they search for supply. In terms of reaching export markets across the world with Ontario wheat, local farmers need only to keep an eye on wheat values in the Black Sea ports. In late October, the forward contract bid for new crop wheat at an Ontario elevator was higher than the spot price for similar wheat at a Black Sea port. (That’s what I meant in the first sentence about our region being a “high-priced island” for wheat.) If we find ourselves in a position where Ontario needs to ship wheat outside of the Great Lakes basin, prices would need to slip a long way.

The opportunity for Ontario wheat producers is that as we’re wrapping up winter wheat planting, the market for next year’s crop has remained strong, and although we don’t know what lies between today and next fall, the ability to lock in a profit on a portion of the 2020 production is a choice which should not be missed.

Historically soft red wheat prices in the $6.50/bu range are the exception rather than the rule, and when we know that production is rising, and there’s a flood of feed wheat looking for a place to flow, there’s little cause to believe that prices could push towards greater highs.

As the old saying goes, “you can’t go broke making money.”