Rebounding Wheat Markets
The rebound in wheat markets seen over the past week and continuing into the last few days of August is a combination of some short-covering and some production concerns in Argentina. Last week’s ProFarmer crop tour showed the market that the USDA’s estimate of record corn and soybean yields is out-to-lunch and as the smaller supply ideas lifted corn and soybean prices, wheat prices also benefited.
That being said, the wheat market is now more focused on what’s happening in Argentina, where the crop just finished planting into some fairly dry conditions. Compounding the situation is some frost events that were seen about 10 days ago. We now have some good understanding of what sort of damage was done – especially in key central and northern Argentina wheat producing areas – and it appears to be headline-worthy. More specifically, the Rosario Exchange continued to drop its estimate of planted wheat area, this time by 1.2M to 16M acres. Comparably, the Buenos Aires Grains Exchange believes that crop losses in the frost-affected area could total 50% of what was expected to be taken off this year (or the potential equivalent of a couple million metric tonnes!).
Similarly in Europe, wheat production estimates continue to fall, with DRV, the German farm co-op the latest to lower their expectations. Despite average yields, the smaller planted acreage means Germany’s wheat harvest should total about 21 MMT, or a 7% drop compared to Harvest 2019. A little to the northeast, Ukraine’s wheat harvest also disappointed this year as the dry conditions equated to an 8% drop to 27 MMT (as per the USDA’s August WASDE last week). With that smaller harvest in mind, Ukrainian wheat exports are tracking 20% behind last year with 5.1 MMT sailed thus far in the 2020/21 crop year.
U.S. wheat exports continue to strengthen on the weakness on the U.S. Dollar and buyers looking for alternative origins from the locations mentioned above who have production issues. In that light, China has been buying more frequently and their wheat imports in July climbed by 325% year-over-year, while corn and sorghum imports were up 137% and 47% respectively. Something to keep in mind, however, is that early yield monitor reports from Russia and Canada suggest the wheat crop is promising (read: average to slightly above average). On a similar note, Australia is expected to get more moisture in the coming weeks as farmers are optimistic crops will do very well after 3 years of drought.
Hot, dry conditions in North America continue to ripen up crops and get combines rolling. Through the U.S. crop progress report on Monday, August 24th, the U.S. winter wheat harvest is basically complete (except for in Montana) while, for the U.S. spring wheat harvest, almost half of all planted acres are now in the bin, but this is a solid departure from the five-year average of 62%. It’s a similar dynamic in Western Canada as harvest progress is slightly behind the norm in all 3 Prairie provinces, but it’s not yet a cause for concern as frost dates are at least a few weeks away in places.
Overall, wheat markets are continuing to trade off the usual supply fundamentals more than anything at this time of year. However, grain movement in Canada continues to be very robust, albeit, this shouldn’t come as a surprise though to anyone. Grain movement hasn’t had much competition from other commodities on rail as, notably, Canadian crude oil rail shipments in June of nearly 43,000 barrels per day dropped to an 8-year low (in addition to being a far cry from the monthly record of 412,000 bpd seen just a few months ago in February 2020!). Thus, if we continue to see strong export activity, we should be optimistic for wheat prices to continue to push up off these harvest lows recently seen!
CEO | FarmLead
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