An Unappetizing August WASDE?
Last Wednesday, on August 12th, the USDA provided its latest installment of their monthly estimates of world agricultural supply and demand, or the WASDE. Specific to wheat markets, the USDA said that ending stocks for 2020/21 will hit a new global record of 316.8 MMT. Keep in mind though that China still accounts for 51% of total global wheat inventories (and they don’t export anything!). Elsewhere, Australia and Canada’s wheat supply and demand tables were largely unchanged, the USDA made downgrades in Argentina and the EU, but increased their forecast of the wheat harvest size in Russia and Ukraine.
Ukraine’s wheat harvest and exports were raised by 500,000 MT to 27 MMT and 18 MMT respectively, while Russia’s harvest and exports were bumped up by 1.5 MMT to 78 MMT and 37.5 MMT respectively. Conversely, the EU wheat harvest (including durum) was felled by 4 MMT to 135.5 MMT, while exports were lowered by 1.5 MMT to 25.5 MMT. The bigger surprise for me was that Argentina’s wheat harvest was not lowered by more than the 500,000 MT than what the USDA reduced it by, to now sit at 20.5 MMT. The Buenos Aires Grains Exchange noted this week, however, that the recently-planted Argentine wheat crop is being punished by dryness, with yield expectations falling “week after week”.
In terms of old crop, the USDA raised Canadian shipments by 700,000 MT to 23.9 MMT, Australian sailings by 300,000 MT to 9.5 MMT, and Ukrainian exports by 600,000 MT to 21.1 MMT. This is likely a reflection of the strong pace of exports from these countries in finishing off their 2019/20 crop year (keep in mind that Australia’s wheat crop year calendar turns over on October 1st so we may see further revisions yet.
In the U.S., the wheat harvest was bigger than traders were expecting as the USDA said the U.S. durum and HRS wheat crops are looking pretty solid, at 62M and 577M respectively (or 1.687 MMT and 15.7 MMT if converting bushels into metric tonnes). But again, U.S. wheat exports were raised to help offset some of this increased production (check out how U.S. HRS and durum exports are faring below), but the increased exports was mainly attributed to the downgrades in Argentina and the E.U.. Ultimately, U.S. wheat ending stocks are now expected to sit at their lowest levels in 6 years!
Overall, wheat prices didn’t move too much following the report. Instead, most of the movement we’re seeing is a result of speculator positioning, and it’s helped erase Minneapolis’ hard red spring wheat premium over Chicago SRW wheat prices. Since Chicago wheat tends to be more of a global indicator (most of the world’s wheat grown, including in the Black Sea and Europe, is of the soft winter wheat variety), it somewhat makes sense that it’s rallied, especially when factoring in the production concerns in the EU and Ukraine. Therein, while the futures values suggest one thing, the cash continues to suggest another, mainly via the basis (or the difference between cash and futures values). As indicated by the most recent wheat cash prices for spot movement, very clearly, the low-protein stuff is not worth more than that the high-protein wheat.
That said, these charts below also indicate a very clear seasonal low that we’re in. Since we have a few more weeks of harvest left to go, I’m not focusing on selling, but rather, understanding breakeven sales levels, filling contracts I signed earlier this year, and working with my banker or accountant to know cashflow needs through the end of the year. Put another way (and as previously mentioned last week), take a breath and DO NOT focus right now on what the market is doing!
CEO | FarmLead
Try our Combyne!