Just over a year ago, Bruce Burnett, the Canadian Wheat Board’s head of weather and crop research, stood in front of the 2014 Cereals North America conference and spun the unlikely tale of a late harvest that delivered a large and high-quality crop.
Rolling the clock forward to this fall, Burnett again took the podium, this time in Winnipeg for the 2015 version of the outlook event.
But this time, he delivered starkly different news. It had been a late harvest again, but the quality of the crop is much more in line with what you might expect from that scenario. In fact, some parts of the wheat matrix are an absolute mess.
“We do have a lower quality crop this year, caused by a cool and wet growing season,” Burnett told the meeting.
Initially most of the crop got off to a decent start, although that start was delayed by a slowly disappearing snow pack in some parts of the Prairies. The notable exception was western Manitoba and eastern Saskatchewan, where around two million acres didn’t get planted due to wet conditions.
The next source of trouble was a torrential rain over the Canada Day weekend that again hit the same region, damaging some of the crops that did get in. Burnett estimates additional losses hit 1.75 million acres, adding that his family has first-hand experience with the problem, because they farm in the region.
“We say we were lucky, we only got six inches in 48 hours,” Burnett said. “A lot of the neighbours around us got eight or 10 inches.”
That was the kickoff for a wet growing season for much of the Prairies, with a large swath of the region including eastern Alberta, most of Saskatchewan and western Manitoba receiving between one-and-a-half and two times their expected precipitation throughout the summer months.
Then late in the season, a large chunk of the southern Prairies turned wet just as harvest was coming up.
“That’s not a prescription for a high-quality crop,” Burnett said.
If there was a lone bright spot it was that the first killing frost was delayed until well into the fall, though Burnett concedes it’s a bit of a hollow victory given the other quality issues that have resulted from the tough growing season.
“If you think it was bad this year, what really would have pushed us over the edge was an early frost,” he said. None of this was surprising news, especially for growers who lived through it. But Burnett said there are some interesting and surprising trends that are showing up now that the post-harvest picture of the crop is becoming clearer.
The durum crop has almost none of the top-tier No. 1 grade available, with just four per cent reaching that standard. Only an additional 19 per cent made it to No. 2 status. A whopping 77 per cent of the crop falls somewhere between Nos. 3 and 5, said Burnett, and he called it the “worst grading crop we’ve ever had.” To put the lack of top quality durum into perspective, he noted that theoretically the entire production of top quality durum for the region could have been filled by just three or four large producers in a normal production year.
Burnett also said other countries had similar quality problems, including harvest rains in France, Italy and Greece, while other major producers like Mexico are nearing the end of their crop year and have scant supplies available. All this has combined to double and even triple prices over the past year, with current prices sitting somewhere between $9.25 and $11.00 a bushel, compared to prices near the $5 mark 12 months ago.
Burnett said he’s calling the market to be at or near a top for a couple of reasons. First, he’s getting calls from general interest daily newspapers on the East Coast of the U.S. wondering why pasta prices are climbing.
“Durum wheat prices are a pretty esoteric topic, and when you have that kind of interest, it’s telling,” Burnett said. “Someone is noticing the price of pasta is rising, likely at small local shops, and is asking questions.”
When end-use customers start worrying about prices, so do semolina millers and pasta producers, causing some to ration demand by switching to lower grades, which can still produce quite nice pasta.
“Quality is entirely in the eye of the beholder,” Burnett said.
Some of this substitution is already happening, with a major sale to Algeria serving as an interesting bellwether. That country is normally a reliable purchaser of No. 2 durum, but this time they bought some No. 3 CWAD.
It’s not that they don’t prefer milling No. 2 CWAD. “They do,” Burnett said. “But they don’t like to mill it at these prices.”
Burnett also said the weather did have an impact on the quality of the CWRS crop in parts of the Prairies, but that damage was far from even. Overall the crop was about average, but pockets were extremely hard hit, especially in the southern Prairies, where the durum also graded badly. There, both quality and protein levels were disappointing.
“If you look at the whole crop, it was about average,” Burnett said.
In other words, Burnett says the shortage of top quality Canadian wheat may have been overstated.
“There is quality grain available in Western Canada,” said Burnett. “Protein is good. Lots of quality differences and problems, of course… but the protein levels look OK.”
Buyers looking to source top quality wheat shouldn’t experience the same difficulties as those looking for durum.
“There seems to be lots of opportunity to meet grades through blending,” Burnett said.
That could mean some pricing opportunities for growers with higher-protein spring wheat, especially later in the marketing year.
Burnett also said the canola crop’s quality concerns for 2014 appear to have been a bit over-reported. Similar to wheat, the concern has been over large and untimely rainfalls in various parts of the growing area, yet the crop itself isn’t showing dramatically different numbers than in most years, with Burnett calling the crop “average, with a bit higher protein meal and slightly lower oil content” than last year’s.
He’s expecting the canola basis levels to continue to improve, as he sees lower ending stocks of just over 900,000 tonnes, compared to 2.363 million tonnes at the end of the past crop year. Don’t necessarily look for that drawdown in ICE canola futures, however, because the U.S. is expecting a large soy crop this year. Rather, look for the basis to improve as the marketing year wears on.
“They will need to ration demand as we move into the last quarter of 2014-15,” Burnett said.
He’s also not looking for major swings in acreage for most crops next year.
“My thought is we’re going to remain flat on our oilseed-cereal mix,” he said, though he noted we may see a shift in oilseed acres, with just over two million acres of soybeans in Manitoba and parts of Saskatchewan.