Considering that Ontario’s 2015 wheat crop has been one of the province’s smallest in recent memory, it has been curious to notice that getting movement this fall of both hard red winter and soft red winter wheat has been extremely slow. When there is so little wheat around, it would seem logical that somebody should want it. So why such an apparent lack of demand?
The good news for Eastern Canadian wheat producers is that our prices never got low enough to make our wheat attractive in the global market. Between the smaller planted acreage in the fall of 2014 and the fact that much of the crop was far from robust looking in the spring, anxiety over whether or not Ontario would have enough supply of locally produced wheat to meet the domestic milling demand kept prices high enough that our wheat was simply too expensive to move out. As producers, Ontario farmers should be really pleased that our wheat never dropped down to the world market price, but at the same time, that lack of movement has created the logistics back up which has dominated this fall’s wheat business.
Think of the grain industry as a highway, where grain flows from growers to elevators and then through terminals or out to end-users. Typically, Ontario exports at least of few vessel loads of wheat at harvest, so the flow of wheat down the pipeline moves along fairly smoothly, however, in 2015 with no export sales in place for harvest, there was no movement, and much like the situation on a highway when a car stops moving, everything behind suddenly ground to a halt. The flour millers use the same amount of wheat each month, and there’s certainly enough milling demand to eat through most of Ontario’s supply, but for shippers who were looking for movement prior to corn or soybean harvest, there’s mostly frustration.
The really good news is that in mid-September the logistics logjam broke. In the course of a week seven vessel loads of Ontario wheat were sold. Although they are not large ships, (they’re all river-class lakers), and they’re not headed to exotic ports of call (all bound for Toledo), these sales do represent about 85,000 tonnes of soft red wheat, which is roughly 10% of the Ontario 2015 production. Even more importantly, they are all moving in the near term.
In addition to the seven vessels, there has been a steady flow of wheat moving out of Ontario by both truck and rail into the Michigan and Ohio milling markets, where the locally produced wheat had significant issues with fusarium head blight. Although it is much more difficult to quantify the amount of wheat crossing the boarder on trucks and railcar than it is to count ships, the trade widely believes that about 70,000 tonnes of Ontario wheat will flow to U.S. millers this season, totaling about 150,000 tonnes of Ontario’s wheat crop being utilized in U.S. flow mills in this crop year or about 17% of our domestic soft red production.
Much like the analogy of the traffic jam, the wheat movement will take some time to return to the normal flow even after the obstruction has been removed. It would be unlikely to expect a sharp increase in domestic wheat demand at any point between today and the end of corn harvest, simply because the pressure for opening up silo space will keep shippers motivated by a need other than price, but forward contract options for late winter and early spring have the potential to improve. The next few months’ old crop wheat market is going to feel a lot like driving into downtown Toronto. Pack your patience, don’t rush, and allow for plenty of time. We will eventually run low on wheat; it simply takes time.