Wheat futures saw a mixed 2019.
In Chicago, investors’ benchmark market, prices of soft red winter wheat rose by 11.0%, completing a third successive year of gains.
Headway was supported by a recovery in the last four months as Australia’s drought-hit crop shrank, Russian exports made a weaker-than-expected start to 2019-20, and rains hampered European seedings ahead of the 2020 harvest.
But prices of Kansas City hard red winter wheat recorded a marginal loss for 2019, weighed by relatively strong US stocks of the class, which has failed to pick up as much feed demand from its value pricing as some investors expected.
Paris wheat prices shed 7.1% in 2019, as a bumper French harvest prompted the country to compete hard for export demand.
Will 2020 see a reversal of some of these trends? Have low Kansas City prices meant even lower plantings for the next harvest? Leading commentators outline their market expectations.
Mike McGlone, Bloomberg Intelligence senior commodity strategist
Wheat is the most likely among the grains to retrace its bear market from most of the past decade, in our view.
Prices bottomed in 2016 and are on a clear recovery trajectory.
Appearing similar to gold, until the metal’s breakout higher this year, an extended consolidation period is solidifying a foundation for the wheat-price recovery.
The most traded price area of the past decade, which is also about the 100-week mean at just below $5 a bushel, is good support.
The 1% increase in the global wheat acreage forecast by the IGC [for 2020-21] is apparently attributable largely to Russia.
As far as the US is concerned, the USDA is provisionally assuming a figure of 45 million acres, that is to say a stagnation at the historically extremely low level of the previous year.
For the EU, initial Strategie Grains estimates pointed towards a slight expansion of acreage, but now the planting problems caused by the rain, especially in France and the United Kingdom, make a small decrease the more likely outcome.
Meanwhile, Australia is hoping to overcome its three-year drought and to be able to produce more wheat again.
At present, we do not expect wheat to be in tight supply on a global level in 2020-21. Consequently, given the higher price level of late we expect prices to pick up only slightly.
Some impetus is likely to come from the corn market. For the end of 2020 we forecast a wheat price of E5.50 per bushel in Chicago and of E190 per tonne in Paris.
Prices for wheat picked up over the last month due to healthy export data, while less favourable winter wheat crop conditions likely added additional upward pressure.
Prices are expected to decline going forward, as increased supply should exert downward pressure on prices. The outcome of the US-China trade war remains a key driver of future price movements, however.
Panellists expect prices to average $4.94 cents per bushel in the fourth quarter of 2020 and $4.90 per bushel in the fourth quarter of 2021.
We have raised our 2020 price forecast by 2.4% from our September estimate, to an average of $5.30 per bushel, and see prices averaging $5.40 per bushel in the fourth quarter of 2020, up from $5.20 per bushel previously.
Taking a preliminary look into 2021, we see a sustained draw in world wheat stocks and a stabilisation in world production driving the average price towards $5.40 per bushel.
We maintain a bullish risk bias on wheat-specific fundamentals, as well as the prospects of a phase one US-China trade agreement. The prospect of a gradual increase in China’s wheat imports into coastal centres in particular should not be ruled out.
Our preferred measure of wheat fundamentals, stocks held by major exporters, remains in a persistent contractionary phase, with stocks-to-use projected to decline to a six-year low in 2019-20 of 15%.
Looking into 2020-21, weather has stifled the potential expansion of winter wheat plantings. In the US, early snow fall across the Plains and Midwest prevented farmers from planting all intended winter wheat area.
In Europe, a sustained wet pattern has delayed winter plantings, and the Black Sea crop has been subject to drier-than-normal conditions.
Wheat prices are expected to remain supported during the coming months. Harvest pressure from Russia and the EU has been overcome, and winter might slow exports from the Black Sea.
However, record global stock levels are expected by the end of 2019-20, and any price increase will be capped as long as the global corn market doesn’t also bring serious price excitement to wheat.
In principle, we don’t expect large changes in area for 2020 US winter wheat. However, we recognise there is a chance of a smaller hard red winter wheat area, given the discount seen in Kansas versus Chicago.
Most importantly, Russia and Ukraine planted winter grains as planned – and in generally good-to-fair conditions – leaving no reason for us to fear, for now, significant acreage issues for the 2020 wheat crop.
In this context, 2020-21 is likely going to be a repeat scenario of 2019-20 - slowly declining stocks in the US, combined with increasing stocks elsewhere.
Canada could continue to see increased wheat production, as spring wheat area may expand to the detriment of canola, since China stopped buying the latter.
A further expansion in spring wheat area and production in Canada can keep the Minneapolis spread over Chicago in check.