Wheat Looks for Next Headline
Wheat markets pulled back last week on decent start to the spring version of Plant 2020 in North America and generally benign conditions across Europe and the Black Sea. That said, we are starting to see some private estimates follow the USDA’s smaller forecast of the wheat crop in the European Union.
More specifically, Germany’s co-op says that the country’s wheat crop should fall about 3% from last year to 22.4 MMT, due to dry weather this spring and less spring wheat acres than intended being planted. This is notable as Germany is the EU’s second-largest wheat producer, after France, but from the perspective of the largest wheat exporters, it goes France, Romania, and then Germany. Given the heightened demand from domestic consumers, intuitively concerns of Germany’s exportable wheat surplus but many analysts believe there won’t be any restrictions (which, I agree with).
Conversely, where some export limitations may come into play is in Romania. A mild winter was followed by an early spring, and then a few frost events, and then consistently dry weather, especially in southern areas. In fact, in these areas, some farmers are replanting their lost crops with spring wheat or corn. Thus, the USDA’s office there is estimating the crop at 8.3 MMT, down 3.5%. Why this is important is it drops the export forecast by more than 10% to 5.4 MMT, meaning Canadian wheat may replace Romanian wheat bought by importers such as Jordan, South Korea, Thailand, and even the likes of Spain.
Italy is another country that Romania exports a lot of wheat to is Italy. Given their tough situation handling COVID-19 and their pasta/food infamy, Italy might be importing a bit more wheat this year anyways. If they’re looking for durum, purchasing more from Canada or the U.S. would be logical, given the pace of shipments so far this year: U.S. sailings of durum are nearly double what they were a year ago while Canadian durum exports cross 4 MMT just last week. Based on the activity we’re seeing for durum on the 100% free Combyne Marketplace, the demand is certainly there (we saw some $9 CAD/bushel handles trade last week!).
Another country I’m watching closely in terms of wheat export limitations is the Ukraine. After shipping a new record of nearly 55 MMT grain in 2019/20, it’s widely expected a less robust export campaign will be seen in the 2020/21 crop year. While the Ukrainian government says they won’t raise or lower its 2020/21 wheat export quota from the 20.2 MMT in 2019/20, it’s more than likely they’ll implement some sort of limits the longer the COVID-19 pandemic keeps the global economy shut down.
Coming back across the Atlantic, spring wheat planting in the U.S. is now pegged at 60% through this past week, which aligns with last year’s pace but is still well behind the five-year average of 80%. Looking north, 42% of fields of all crop types were planted through last week, which is slightly behind the seasonal average of 55%. It’s a similar situation in Saskatchewan where just 18% of the crop was seeded through last week, down from the usual 25% completed by now. Finally, in Alberta, last week’s crop report shared that about 21% of all crops have planted, also slightly behind the usual pace. For the most part, the blame of the delay has been attributed to waiting on better weather and getting Harvest 2019 finished up still!
Ultimately, with the focus on planting in North America and Argentina, and the harvest starting in Europe and the Black Sea, the market is looking for the next headline for direction. That said, it’s this time of year that we usually see some weather premium in corn and soybeans spill over into wheat markets. However, given all the demand uncertainty thanks to COVID-19, methinks that Mother Nature’s impact on the market may be more muted than in year’s past (read: normal demand years). Conversely, any trade disruptions could push volatility, therein creating some new or remaining old crop sales opportunities.
CEO | FarmLead
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