How Did the 2021 Droughts Affect Canadian Wheat Exports and Prices?
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Canadian Wheat Recovering in MY 2022/2023
Canada is a world-leading Wheat producer, with a 35 Mmt record production in MY 2020/2021. However, in MY 2021/2022, drought conditions, particularly in western Canada, led yields to decrease by 1.2 mt/ha YoY, leading production to drop to 22 Mmt, 13 Mmt lower YoY. Nevertheless, for MY 2022/2023, the USDA estimates Canada will increase Wheat yields by 1.1 mt/ha YoY, thus, production will reach 34 Mmt, 12.3 Mmt higher YoY. As Canadian Wheat exports represent 22 Mmt on average (~73% of the average production), how did the decline in MY 2021/2022 affect exports?
Figure 1: Canada Wheat Production (MY 2018/2019 – 2022/2023)
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Canada’s Increased Wheat Production Will Benefit the Global Supply Shortage
Canadian Wheat production has reached its lowest level in MY 2021/2022. As a result, exports decreased to 8.4 Mmt, 9.1 Mmt lower YoY (~ -52%). On the other hand, as production reached 34 Mm in MY 2022/2023, Exports reached 4.3 Mmt from Aug to Nov 2022, 1.4 Mmt higher YoY. Yet, the volume is 2.4 Mmt lower than Aug to Nov MY 2020/2021. Canada’s Wheat exports declined during the same period when the war in Ukraine began in late Feb 2022, exacerbating the global grain shortage. The Increased Wheat production in 2022 will benefit demand markets. Thus, which import markets depend on Canadian Wheat yields between 2020 and 2023?
Figure 2: Canada’s Wheat Exports (MY 2019/2020 & Aug to Nov 2022/2023)
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China Overtakes Algeria as the Top Destination for Canadian Wheat in MY 2022/2023
Algeria was the leading destination for Canadian Wheat in MY 2021/2022, with 696 kmt. In MY 2022/2023, exports to Algeria increased by 33 kmt YoY between Aug- Nov. However, China reached 655 kmt of imports, increasing by 302 kmt YoY (~+86%) to rank as the leading destination during the same period, while Algeria moved to the 19th place. Algeria is an important Wheat importer, with annual imports of 7.9 Mmt. Yet, despite being one of the top destinations for Canadian Wheat, Algeria’s main Wheat exporters are European (Mainly Bulgaria, France, Romania, Germany and Ukraine). How do Canadian Wheat export prices to Algeria compare to Europe’s?
Figure 3: Canada’s 5 Top Wheat Destinations ((MY 2019/2020 & Aug to Nov 2022/2023)
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Algeria Imports More Wheat From Canada Despite High Prices
In 2020/2021, Wheat CFR indications from France and Russia to Algeria were close, with Canada’s slightly higher. Since Q3 2021, the decline in Canadian Wheat production has caused CFR indication prices to peak at USD 492/mt in October, USD 206 / mt higher YoY, and USD 124 /mt higher than for France and Russia. In 2022, the war in Ukraine deepened the supply tightness and led the Canadian CFR indication average to peak at USD 620/mt in May, the highest over the past three years, USD 167 /mt and USD 148/mt higher than France and Russia export prices to Algeria, respectively. However, as MY 2022/2023 production has increased, export prices to Algeria have declined to a low of USD 425/mt in Sep, USD 37/mt lower YoY, yet USD 91/ mt and USD 65 /mt higher than France and Russia’s, respectively. Despite higher Canadian prices, Algerian imports continue to rise, especially as Russian and European limited Wheat exports due to the war in Ukraine and droughts in Europe.
Figure 4: Algeria’s CFR Indications for Wheat Imports From Canada, France & Russia (Aug 2020 to Nov 2022)
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In a Nutshell
In 2021, drought severely affected Canadian Wheat production, resulting in a third production loss YoY for MY 2021/2022. As a result, exports decreased, and prices increased. In 2022, the war in Ukraine led most major exporters to limit their exports, so prices continued to rise.
Algeria is the main destination for Canadian Wheat in MY 2021/2022. However, at the beginning of the 2022/2023 season, China doubled its Wheat imports from Canada between August and November, while Algeria ranked 19th despite a slight increase in imports YoY.
Canada’s 2022 Wheat production will benefit the country during the remainder of the 2022/2023 crop year. In addition, despite the higher prices, Algeria continues to import from Canada as supply is limited on the European side. Thus, will Algeria increase its imports during the remainder of the season to overtake China as the top destination for Canadian Wheat?
