Canada set to become major wheat supplier in H1

Canada’s near-record wheat output in 2022 is expected to thrust the country into the position of a major global supplier in early 2023, capitalizing on the low supply prospects for key markets such as Argentina, the US and the EU.

Canada is expected to harvest 33.8 million mt of wheat in the marketing year 2022-23 (August-July), 51.5% higher on the year, according to Statistics Canada data. The more favorable yields are expected due to improved weather conditions, which would make Canada a major wheat supplier in the Western Hemisphere.

“The primary reason for the increase in area under the crop was the attractive prices amid supply constraints during the sowing season,” a trader based in Vancouver said.

In line with the bigger harvest, Canada’s wheat exports are also seen surging on the year. According to Agriculture and Agri-Food Canada, the country’s wheat exports were estimated at 23.5 million mt in MY 2022-23, up from 15.1 million mt.

Opportunity for Canada

While Canada’s wheat output outlook seems to be robust, there are some concerns over the crop in some pockets. Statistics Canada scaled down its estimate for wheat output by nearly 1 million mt, due to dry conditions in parts of the Prairies region. But that is not expected to cause a big dent in Canada’s total wheat export outlook.

Demand for Canadian wheat is likely to rise as weather concerns cloud prospects for Argentine and US crops. Argentina and the US are key suppliers of wheat to Latin America and East Asia.

In the US, concerns over winter crop quality are emerging due to exceptional drought in much of central and southern plains. An estimated 34% of the crop was rated good-to-excellent as of Nov. 29, down from 44% the same time one year ago, the US Department of Agriculture said.

Also, US wheat exports are likely to decline. Total MY 2022-23 commitments for US wheat were down 7% on the year at 14.1 million mt as of Dec. 8, the USDA said.

Trade participants expect Canada’s exports to China, Indonesia and Japan to rise in MY 2022-23. During the first three months of MY 2022-23, China imported 1.1 million mt of wheat from Canada, sharply up from around 700,000 mt bought in the entire MY 2021-22.

“With China relaxing the ‘zero-COVID’ policy, there is the likelihood that it may keep on purchasing wheat from Canada,” a trader with a multinational company based in Singapore said.

Apart from Asian countries, Canada may increase shipments to South American nations due to the drop in Argentina’s output.

Argentina is likely to harvest 11.8 million mt of wheat in MY 2022-23, down from 23 million mt. The USDA has pegged Argentina’s wheat exports in MY 2022-23 at 10 million mt, down from 16.3 million mt seen in the previous year.

Supply concerns for Australia

Concerns over poor supply of premium quality wheat from Australia are also expected to push up demand for Canada’s wheat. Canada and Australia are both key growers of high-protein wheat.

Australia, the sixth largest producer and fifth largest exporter, is likely to see a sharp increase in its overall wheat shipments but the supply of high-protein wheat is expected to be lower.

Traders expect the portion of milling grade wheat in Australia to slide in MY 2022-23. However, the segregation ratio between milling and feed wheat will remain non-transparent until the harvest is closer to completion.

Black Sea wheat trade

Canada’s wheat might just face competition in the global supply markets as Russia offers wheat in different regions at lower prices.

Interest in Russian crop increased after it reported a bumper wheat harvest in July and made the export tax less onerous.

Following Russia’s invasion of Ukraine in February, the difficulty of arranging financing, insurance and shipping discouraged many international traders from buying grain from the country.

Since July, the country’s wheat sellers have often provided the lowest offers for the major wheat importers in the Middle East and North Africa, such as Egypt’s state grain board GASC.

The USDA puts Russia’s 2022 wheat crop up 21% over the year at 91 million mt. It expects Russia’s exports for MY 2022-23 to be up 10 million mt at 43 million mt, a fifth of the global trade.

“Russia is facing a glut as supplies slowed amid its bumper crop, so it is trying to offload its wheat at lower prices. This might give a stiff competition to Canadian wheat,” Chuck Russel, a trader based in Alberta, said.

Russia has also been offering wheat at lower prices, particularly in Asian countries.

Prices

Canadian wheat prices saw a year of volatility as global wheat supply tightened following Russia’s invasion of Ukraine in February. Prices rose steadily through May before peaking May 17 at a record $541.79/mt, data from Platts, part of S&P Global Commodity Insights, showed.

Following the implementation of the Black Sea Grain Initiative, which allowed for the safe passage of grain vessels through the Black Sea, Canadian wheat prices saw a steep decline before flattening out from July through the end of the year.

CWRS basis values reached a yearly high at 151 cents/bushel in February, and reached their lowest in May at 59 cents/bu.

However, with the likely increase in demand for Canadian wheat from various locations, FOB prices of wheat with Canadian origin may see a rise over the next few months.

Tags: Canada, wheat