Opportunities for Ontario Wheat Growers
Wheat futures have been on a roll in the last few weeks! Although this newsletter will never be a market advice newsletter, we want growers to have a positive wheat growing experience. In my eyes, a positive wheat growing experience involves growing a great crop, and selling at strong prices.
We reached out to a respected commodity market analyst, and a renowned Ontario wheat grower, to obtain their views on the current opportunity for Ontario Wheat Growers. We appreciate their insight.
Cal Whewell (Risk Management Consultant, INTL FC Stone) offered these comments.
Q. From the futures standpoint, are 2018 wheat prices any good right now?
Cal. “When I look at the trading ranges the CME (Chicago) wheat futures have established over the last three to four years, the nearby contract fits within the prices of $4.00 on the low side and $5.50 on the high side. We have skipped above and below these marks briefly, but that range has contained the wheat market over 90% of time since January of 2015. Today the nearby wheat market is trading $5.20 well within the upper 1/3 of the established price range.”
Q. So I will call 2018 futures pricing “decent”, what about looking ahead to 2019?
Cal. “With the carries built into the CME wheat market July 19 wheat is trading today at $5.69, which of course is above the above mentioned price range.”
Q. In the big picture, what could be next big global events to affect wheat markets?
Cal. “The opportunities we see today have come about because of weather issue in the EU and Russia. It’s the markets belief, as well as the USDA, that these smaller wheat crops will create a much better environment (less completion) in the wheat export market for US wheat. We will need to actually see this business to show up. Thus far it has not. So the first event to watch is weekly wheat export sales reports on Thursday mornings for evidence this truly is happening. The market is also watching weather in Australia. They will be the next large wheat export to harvest a crop. Today the belief is their production will be on the smaller side. This once again would, in theory, will lead to better US exports.”
Q. In the Ontario picture, what could be the next event to change Ontario basis level dynamics?
Cal. “I really feel that is a question of the Canadian dollar. In a US value terms I would say 2018 wheat is on the stronger side of normal with the 2019 crop on the weaker side of normal. But neither one is far off the mark. Now when you add the Canadian dollar into the mix it is a whole different question… Are you planning on a 72 cent dollar or a 90 cent dollar. If it is 72, do nothing, if it is 90 you better get something locked in on basis.”
Shawn Schill (Owner of Shawridge Farms, Arthur ON) is passionate about growing wheat, and he has years of experience managing and marketing many acres of wheat. We posed these questions to him, to understand how current wheat pricing opportunity impact at the farm level.
Q. What would you say is a satisfying revenue per acre as a wheat grower?
SS. “The opportunity to lock in gross revenues upwards of $650-750, on expected production, offers pretty decent rate of return for the producer. That gets me excited about wheat! And the straw has a value too.”
Q. How large of a percent of your crop would you be comfortable to sell on forward contract?
SS. “Currently I have been aggressively selling wheat at these strong values for ‘19 and ‘20 crop. Normally I like to sell between 50%-60% before planting but at these attractive prices I am closer to 70%, would step sell on rallies into 19 harvest as I become more comfortable on overall production. Producers with storage could take advantage of the carry and sell a deferred delivery period provided that storage space is not required for corn and beans.”
Q. Have you ever forward sold more crop than you have produced in a given year? How did the grain company handle the situation?
SS. “I have sold more than I have produced before. As a hard red wheat grower I have been able to swap a winter wheat sale and convert to spring wheat sale and would plant spring to compensate for a WW production shortfall. I have also had to roll a sale forward to the next crop year, it is important to discuss this with whoever you are making your sales with at time of sale.”
Q. How excited are you to have the chance to sell wheat at prices above $7.00/bushel? What do those types of price levels enable you to do as a producer?
SS. “$7 cash wheat makes me giddy and provides a great opportunity as a producer. Gives me fiscally good returns but also generates good early harvest cash flow, agronomically enhances our rotation and provides a wonderful opportunity to plant cover crops and enhance our soil health.”
Q. In your opinion, what could be the next big thing to impact the price Ontario Growers could obtain for their 2019 or 2020 wheat crops?
SS. “The price carrot to plant wheat is in front of the Ontario producer, with a nice open fall and early bean harvest I could see Ontario planting 1.2-1.5 mil acres… This would create pressure on Ontario wheat basis and if we see continued strength in the Canadian dollar would be a double whammy to put pressure on the Ontario cash wheat market.”
Q. If Mother Nature cooperates, will you plant more or less wheat acres this fall?
SS. “At my current sales level for ‘19 wheat I will definitely have a year-over-year increase in acres. If Mother Nature plays nice we will be increasing acres by 25-30%.”
We know that forward pricing is not comfortable for every producer, but there is a real opportunity to lock in an excellent profit on a portion of your wheat production. Value added opportunities exist also. Please take advantage of it, consider putting some on the books.