Durum wheat
The key durum wheat-producing countries are experiencing supply and quality concerns. According to market sources, the US and Canada may not produce enough durum wheat in the 2023/24 season (July ‘23 – June ‘24) to meet the demands of the countries that usually import durum wheat for pasta purposes. According to the latest USDA report, the US durum wheat crop is in better condition than the Canadian crop. The Canadian crop is increasingly deteriorating due to persistent heat and dry weather across the Prairies. US durum wheat production is pegged at 1.56 million mt, up 6% from July estimates but down 10% from last year. At the same time, the Canadian durum wheat estimate is pegged at 4.2 million mt, 20% less than a year ago and is estimated to be the second smallest crop in the last six years, with the 2021/22 crop being the smallest. Market players believe the Canadian wheat durum crop could be even lower, at 3.7 million mt.
Mintec learned that the quantity of the Canadian durum wheat crop is not the only issue, but there are also concerns about the quality of the durum wheat crop in other countries. For example, another major producer of durum wheat, Italy, is facing poor quality issues after the excessive rain in the May-June growing period. Yields are relatively strong, but the low carry-over stock and poor crop quality could increase the country's reliance on high-quality imports. Thus, recent price movements have reflected the tight supply of high-quality durum wheat. The durum wheat price [Mintec code: WI14] from Italy has risen substantially, especially the best quality category 'Fino', reaching EUR 422.5/mt on 16th August, up EUR 80/mt since early July. According to market players, there is sizable, good-quality durum wheat in Russia, Kazakhstan and Turkey, which the market will be able to access first. However, this will not be enough to satisfy overall demand. With quality in question, market participants expect the global supply-demand balance sheet to remain tight this season.
Soy
Canadian soybean production for the 2023/24 season (September' 23-August' 24) is forecast at 6.9 million mt, an increase of 4.7% compared to the previous season's output and the five-year average, according to the Canadian Outlook for Principal Field Crops report. The estimated y-o-y rise in output is attributable to an increase in the area seeded (+6.7% y-o-y) and area harvested (+7.6% y-o-y). While total domestic consumption is projected to decline by 1.2% y-o-y, exports are forecast to increase by 6.7% y-o-y. Higher soybean production in Canada has led to increased exports to China in the 2022/23 season, according to the USDA. With growing concerns about the 2023/24 US crop due to dry weather conditions, market players could continue to seek supply from alternative regions, including Canada. However, weather conditions in Canada will also be a watch point as severe drought remains in Southern Alberta and Western Saskatchewan, where a sizeable amount of beans is produced.
Canola
Statistics Canada's August update has surprised market players in the Canola sector. The report highlights a 3% surge in canola cultivation between April and May 2023, translating to an impressive 8.9 million acres committed to canola production. This marks an increase of 200,000 acres compared to the data released in the July report.
This spike in canola planting aligns with insights from market players who shared their perspectives with Mintec commenting that heightened cultivation was likely due to the upward trajectory of Canola prices that farmers have enjoyed over the past two seasons. While this correlation is unsurprising, the unexpected strength of crop yield estimates by Statistics Canada has caught the market's attention. Despite significant concerns expressed to Mintec around the hot and arid weather that adversely affected soil moisture in crucial growth zones like Saskatchewan, crop yields, according to Statistics Canada, have held steady at 2.13 metric tonnes per hectare.
The convergence of optimistic yield estimates and an expanded planting area has led Statistics Canada to forecast a canola production of 18.8 million metric tonnes, surpassing last year's 18.17 million metric tonnes. This projection starkly contrasts estimates shared with Mintec, which placed the crop's production between 14 to 16 million metric tonnes. Moreover, market players highlighted to Mintec that Statistics Canada's projected yields are 0.2 metric tonnes per hectare higher than the previous year, during which conditions were considered better than this year. Consequently, industry sources have expressed scepticism to Mintec about the feasibility of achieving a production of 18.8 million metric tonnes.
The disconnect between official figures and market players' estimates could potentially ignite substantial market volatility as the uncertainty between the prospects of increased or potentially reduced production continues. Adding to this complexity is that MATIF rapeseed is trading at a significant discount compared to ICE Canola.
