Wheat Finding a Summer Bid
Wheat markets all looked pretty good to end last week’s trading as a slightly bullish-wheat July WASDE report made a surprise/rare appearance. In it, the USDA acknowledged both a smaller American wheat harvest (-5% year-over-year) and slightly tighter global supplies. Understandably, in a COVID-19 world where food staples made with wheat are in above-average demand, speculators interpreted the smaller supplies datapoint as bullish, and the weekly performance shows by how much.
Usually, the July WASDE report is a neutral-to-bearish event for most crops, but the USDA downgrading not only the U.S. crop, but the harvest in Russia and EU as well helped propel wheat prices higher. In Europe, the USDA said their wheat harvest will be 1.5 MMT smaller than what they thought in June, also downgrading 2020/21 wheat exports from the bloc by 1 MMT.
Nowhere has the production pullback been more evident than in France, where farmers are expected to cut a non-durum wheat crop that’s likely to be one of the smallest in nearly 20 years! Between last fall’s wet conditions, followed by an unusually dry spring, the French Ministry of Agriculture estimated their wheat crop at just 31.3 MMT, a drop of 21% year-over-year. Accordingly, total wheat exports from France should fall by about 30% to 14.9 MMT, with just 7.8 MMT allocated for other E.U. member nations. If realized, France’s 2020/21 wheat exports to other EU countries would be nearly half of what they were in 2019/20! More importantly, France’s wheat ending stocks should end up 12% lower year-over-year to about 2.6 MMT.
In Russia, production was lowered month-over-month by 500,000 MT to 76.5 MMT, but exports were stayed at 36 MMT. That said, private consultancy, IKAR, dropped its estimate to match the USDA – its second downgrade of the Russian wheat crop in as many weeks – as they indicated weaker-than-expected yields in southern & central regions, where dryness was prevalent earlier in the year. With yield monitors showing undesirable numbers, many Russian farmers are holding back on their off-the-combine sales. Thus, they are taking the blame for Russian wheat exports in the first 2 weeks of their 2020/21 crop year being only 1/3 of what they were a year ago, but wheat prices there have climbed about 2.5% in the past week!
Looking elsewhere, I continue to have my eye on Argentina, where dry conditions during planting in May have led to more downgraded of the wheat harvest there. While the USDA kept their forecast at 21 MMT, the Rosario Grains Exchange lowered its expectations to a range of 18-19 MMT. For perspective, bout 15% of planned wheat acres still haven’t been planted in Argentina. Similarly, Western Australian growers are looking for some better rains after getting their planting done, but the forecast looks to help them out more than it does Argentinians.
Even after the weekend, traders continue to react to the smallest U.S. winter wheat harvest in 3 years. The July WASDE also gave us a first look at the USDA’s production expectations by class, suggesting the HRS wheat harvest will fall by 4% from last year to 13.7 MMT while durum production will basically be flat at 1.52 MMT. Rounding things out and compared to last year American HRW wheat output should drop 15% to 19.2 MMT, SRW wheat production should climb 18% to 6.5 MMT, and white wheat (both soft and hard varieties) is expected to be stable at 7.5 MMT.
Here at home in Canada, we have 4 weeks left to go in the crop year and grain continues to be moved at a record pace. With little competition (and no protests) on the railroads, both CP and CN were able to move record volumes of grain in the month of June, as well as the second calendar quarter. If the current pace is maintained over the next few weeks, Canadian non-durum wheat exports could certainly match 2018/19’s volumes.
Looking forward into the 2020/21 crop, some heavy rains (and hail) will challenge a few wheat fields in Western Canada to make it through the combine, but, generally-speaking, crops across the Prairies look pretty decent. More generally, while you might see some extreme conditions in your area, this doesn’t match up with every single acre out there that’s been planted. Thus, unless a heat wave hits most of the North American crop for the rest of July, I don’t expect more weather premiums to creep into market. That said, there are still some solid opportunities to sell remaining old crop, especially in feed markets (for now, that is – check out what happened last summer in the chart below!).
CEO | FarmLead
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