Cue the Growing Season Pains
As we near the end of the month of June, the wheat complex continues to be challenged by relatively benign conditions and the winter wheat harvest accelerating with decent results. Scattered precipitation has alleviated drought or near-drought conditions throughout the major wheat-growing regions in North America, inherently giving the ball to bears to run with (and putting the bulls into a mode of growing season pains).
In their June 30 Stocks and Acreage report, the USDA is expected to show 44.72M acres of total wheat, slightly higher than what they said in March Prospective Plantings report. In terms of June 1st stocks, U.S. wheat inventories are pegged at 980M bushels, down just 10M bushels year-over-year. The report will be more impactful for corn and soybeans though, as acreage and inventories will be closely watched by traders and farmers alike, looking for a trading opportunity before the 4th of July holidays.
Looking north, Statistics Canada says their survey of 24,500 farms across Canada from May 14 to June 11 suggested 25M acres of wheat in 2020, a 1.5% bump from last year’s area. Durum saw a notable increase though, as acreage is expected to climb more than 16% to 5.7M acres (although not as big as I was expecting) while winter wheat acreage is up nearly 50% to 1.4M acres. Inherently, good durum prices this spring has helped support the acreage expansion.
Conversely, Canadian spring wheat area is expected to fall almost 5% to 17.8M acres as farmers opted to plant more durum, barley, and even lentils. That being said, more than a few HRS wheat-growing areas have received above-average rainfall to start this growing season. Further, spring wheat prices haven’t looked as favourable as that of feed barley and/or oats, meaning there’s been alternative cereals to put into the rotation.
Looking abroad, Brazil is looking to become more self-sufficient when it comes to its wheat needs. Last year, Brazil imported 7.2 MMT of wheat, with Argentina accounting for 85% of this volume. But as demand for food staples like bread, flour, and other cereal-based products increases, Brazil is going to need to import more wheat, hence their government’s push to become bigger wheat producers. While Brazil is expected to produce 5.5 MMT in the 2020/21 crop year (+6% YoY), Argentine farmers are estimated to harvest a record 21 MMT wheat crop (+8% YoY). That said, through last week, only 21% of the crop was in excellent health, and while that’s up 5 points week-over-week, it’s still down 21 points from a year ago, thanks to the persistently dry conditions they’ve experienced.
Rounding things out, the EU wheat crop continues to get downgraded as the effects of very little rain and hot temperatures are showing up in the yield monitors. The EU Commission dropped its soft wheat harvest estimate by 3% from May to 117 MMT. This is also a 20% drop year-over-year. The biggest impact has been in the two largest producers, Germany and France, with the latter’s G/E rating sitting at just 56% down 24 points from last year and the worst rating since 2011.
Despite some of these bullish production dynamics in Europe and Argentina, the market is mostly focused on the fact that there’s a lot of wheat in the world. With many parts of the Northern Plains and Western Canada getting some badly needed shots of moisture (too much, in some areas in fact), any dryness concerns have been mostly alleviated. Therefore, to set some expectations, we shouldn’t expect any significant selling opportunities probably until the fall, but rather sideways-to-lower action as the growing season passes. If you’ve been reading this column, hopefully you’ve been a proactive risk manager and captured some new crop opportunities that have been around the past few weeks!
Final note: Happy Canada Day!
CEO | FarmLead
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