During his Jan. 23 presentation at the Ag Outlook convention in Swift Current, economic analyst Brad Magnusson from the Magnusson Consulting Group spoke about the impact of Russian exports on the Canadian agricultural market.
Magnusson’s insights can help local producers understand why the wheat market, and especially red spring wheat, is projected to perform so poorly in 2024.
All commodities – including wheat and other agricultural products – move in cycles and all commodity cycles tend to follow the same pattern. These cycles usually operate over 10 years on average, and he said we’re not at the bottom yet. Once there, which could be in another two years, it normally takes four to six years for prices to climb back up.
Local market prices are determined through a complex mixture of factors, but insights can be attained by examining the different input factors, of which increased Russian imports is one.
“Essentially, up until about 1996, Russia was a very big buyer of wheat. They were the largest buyer of wheat out of Canada,” he explained.
“Now, (Russia has) become the biggest exporter (of wheat) in the world.”
This changing dynamic has fundamentally altered the global production and marketing of wheat.
“We would normally see China… Egypt, (and the) UAE buying wheat out of the United States or Canada. A lot of those countries now are looking at the cheaper Russian wheat…”
He said the Russian export is of poorer quality, but it’s cheaper compared to a higher-quality Canadian wheat. As a result, former importers are buying less Canadian wheat.
According to Magnusson, many of these foreign markets are using a limited amount of the higher quality Canadian wheat to “blend off” the Russian exports, thereby improving standards while keeping costs low.
In recent years, Russian wheat exports have averaged approximately 51 million tonnes, as compared to an average Canadian export of between 20 – 24 million tonnes annually.
“That’s translating into quite substantial differences in price. If you were to take 51 million tonnes out of the market, you would see substantially higher wheat prices,” he said.
Currently, hard red spring wheat futures are sitting at just over $6 on the Minneapolis Grain Exchange (MGEX) index.
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