Wheat Harvest 2020 Picture Getting Clearer
Wheat prices ended last week mostly lower as gains made earlier in the week – due to production downgrades in Europe, the Black Sea, and Argentina – but welcomed moisture events kept the rally in check.
In Europe, Strategie Grains downgraded their estimate of the European soft wheat harvest yet again, this time by 600,000 MT to 130.9 MMT. If realized, this would be a 11.5% drop in production year-over-year, more than 10% decline that the USDA shared in their July WASDE report. One of the EU’s top wheat producers, Poland, is expected to harvest 11.7 MMT of wheat (+6% YoY), according to the USDA attaché there. Further, in Germany, the farm co-op there, DRV, raised their estimate of the country’s wheat crop by 300,000 MT to 22.5 MMT. While that’s still about 2.5% below last year’s wheat harvest, grain markets are acknowledging that’s it’s not all that bad.
Looking across the Atlantic, In last week’s Wheat Market Insider, I mentioned that the Rosario Grains Exchange downgraded its estimate of the wheat harvest there by 3 MMT to a range of 18 – 19 MMT as the crop continues to get planted into quite dry conditions. Furthermore, a mild La Nina event is expected to hit Argentina between September and December, challenging a wheat crop as it nears the finish line.
Heading north, the USDA attaché in Mexico recently downgraded the size of the wheat crop there to 3.05 MMT (including durum, or as it is known in Mexico, “cristalino”). Less durum/cristalino was planted this year by Mexican farmers thanks to the government incentivizing the planting of more low-yielding bread wheat instead with better price support programs for the latter. Getting specific, in southern regions of Sonora and Sinaloa, durum production is expected to fall by about a third to 800,000 MT while non-durum wheat production should more than double to 700,000 MT.
Speaking of durum, with 3 weeks left in the 2019/20 crop year, Canadian durum exports are tracking 13% higher than last year with 4.85 MMT sailed through Week 49. Looking forward, we all know that durum production in Canada is set to climb this year, mainly thanks to StatsCan’s most recent acreage increase to 5.7M acres (which is +7% or 336,000 YoY and +9% or 460,000 acres higher than March’s seeding intentions survey). This is expected to result in a 6 MMT Canadian durum harvest, which would be a 10.5%, or 523,000 MT jump from Harvest 2019. While additional exports should take some of that extra production, AAFC raised 2020/21 durum ending stocks from their June estimate of 800,000 MT to now sit at 1 MMT. Globally, the IGC is estimating that global durum carryout in 2020/21 will fall to 6.5 MMT, a drop of 1.2 MMT year-over-year and the lowest since 2007/08.
For non-durum wheat, Canadian planted acres are down about 3% from last year with 19.5M acres seeded as a 17% increase in winter wheat acres offset a 5% pullback in spring wheat area. While the total area is smaller than what was first expected, this means expectations from AAFC in terms of production and exports have been lowered. However, the blessing is that 2020/21 non-durum wheat ending stocks were lowered by 600,000 MT, with AAFC now pegging the number at 5.4 MMT (which is still a stocks-to-use ratio of 20%).
All things in mind, it is important to look at the full picture and the reality is that it’s not all bullish in wheat markets as there’s been those healthy rains falling in Europe, Australia, and North America. While some want the taps turned off as its impacting winter wheat harvesting and/or spraying plans, rain does makes grain! However, it’s also impacting wheat trade flows, as already, Ukraine and Russian wheat exports in the first few weeks of their 2020/21 crop years, are tracking well behind the average (this is usually when exporters there can’t keep up!).
This aligns well with timestamped call in a Breakfast Brief a month ago that any production downgrades to the 2020/21 wheat harvest in major exporting countries could help catalyze wheat prices higher. Moreover, Strategie Grains shared in a note last week that “the level of projected stocks on the world remains very precarious.” One of the countries that I specifically called out in that post from June was Ukraine, and right now, the USDA is expecting a 9% decline in their wheat harvest, whereas the local USDA office in Kyiv is expecting an ever bigger fall (24.7 MMT or -15% YoY).
One other major factor to consider is protein availability. So far in the U.S. winter wheat harvest quality assessment, average protein levels are sitting at 11.2%, below last year’s “disappointing” 11.3% average, and the five-year average of 11.7%. As a result, it’s expected that more U.S. Northern Plains and even Canadian wheat will be making its way to millers around the country, and even abroad. One last point to consider: the combination of smaller U.S. spring wheat acres and expectations for weaker protein levels in Montana and South Dakota could contribute to premiums this fall. Accordingly, be proactive and get your sample bags ready – our combines will be rolling soon enough!
CEO | FarmLead
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