Corn Provides Support for Wheat Prices
In the second week of June, winter wheat prices gained some ground on corn prices hitting new five-year highs, but hard red spring wheat prices in Minneapolis lost some ground on anticipated rains for Western Canada. Corn prices improved by 9% or nearly 40 cents USD/bushel in Chicago thanks to the USDA felling their estimate for average U.S. corn yields by 10 full bushels in their June WASDE report.
Except for corn, the global numbers that came out in the June WASDE report were a bit more neutral, with no major changes. Yes, 2019/20 worldwide corn ending stocks were dropped significantly to reflect the downgrade in U.S. production, but there weren’t too many changes. Maybe the one highlight would be the USDA raising Brazilian corn production estimates to 101 MMT, a new record.
For wheat, again, not too much changed in this WASDE report except for Black Sea numbers as the USDA dropped both Russian and Ukrainian wheat production by 1 MMT. This puts their 2019/20 wheat harvests at 77 MMT and 29 MMT respectively. For the record, these are both below local forecasts from private analysts, including SovEcon’s estimate of Russian wheat production at 82.2 MMT.
This means that Canada’s wheat production number stayed at 34.5 MMT, Kazakhstan and Argentina held at 13.8 MMT and 20 MMT respectively, and even Australia’s number did not move from 22.5 MMT. However, a day after the WASDE report, ABARES did lower their estimate of 2019/20 wheat production in the Land Down Undaa to 21.2 MMT from their first forecast of 23.9 MMT. This is mainly a reflection of the drought conditions that are facing a large part of Australia’s production area for the third straight year.
That being said, Western Australia got a good soaker last week, “reviving hopes of at least an average crop” in the region, according to the Australia Financial Review. If you recall, Western Australia has been the savior of grain production in the Land Down Undaa as its production has been trying to make up for the shortfalls in Eastern Australia. One could argue that Canadian wheat has also helped make up for those shortfalls, having shipped some loads southwest across the Pacific Ocean.
On that note, it was a “down” week for Canadian non-durum wheat exports, but shipments are still tracking 13.4% ahead of last year’s pace with just under 16 MMT exported thus far in the 2018/19 crop year. With just 7 weeks to go, if an average pace is maintained, we could see a new record for Canadian non-durum wheat exports.
Conversely, the U.S. 2019/20 wheat marketing season started with the month of June but HRS wheat exports the first week was a bit slow, coming in below expectations and last year’s pace. For the record, we won’t get the USDA’s estimates for 2019/20 U.S. hard red spring or durum exports until next month’s WASDE, published on Thursday, July 11, 2019. Until then, markets will continue to be focused on the weather in the Northern Plains and Western Canada for price direction. Something to keep in mind in your pricing expectations is the larger area planted into spring wheat across the Prairies, especially when also factoring in this recent shot of rain.
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