While still a record, it appears that global wheat production for the 2020/21 season may have peaked as the crop comes under yield pressure in a number of the major producers.
The United States Department of Agriculture (USDA) released their latest World Agricultural Supply and Demand Estimates (WASDE) last Friday, and total wheat production was reduced by a tad over 4 million metric tonne (MMT) to 769.3MMT.
The USDA reduced domestic production by 1.5MMT to 49.6MMT compared to last month on the back of record-low plantings of 14.84 million hectares (Mha) and an average yield of 3.34 metric tonne per hectare (MT/ha). This will only be the fourth US wheat crop below 50MMT since the 1981/82 season when the US harvested their largest ever crop of 75.8MMT. The US winter wheat harvest is reported to be 68 per cent complete as of last Sunday.
North of the border the WASDE report left Canadian wheat production unchanged at 34MMT, up 5 per cent on last year’s production. The USDA estimated the total area sown to wheat at 9.8Mha, up slightly on the 9.7MHa planted last year, but lower than the June StatsCan estimate at 10.1Mha.
Wheat production in the European Union and the United Kingdom is also down 1.5MMT to 139.5MMT relative to June. This is a year-on-year decrease of 15.4MMT and is 10.2MMT below the 5-year average. The planted area is estimated at 25.3Mha, unchanged from last month, but 0.9Mha below last year and 4 per cent below the 5-year average. Yield is set at 5.52MT/ha, down 1 per cent from June and 7 per cent from last year.
Soft wheat production in France, Europe’s biggest wheat producer, is forecast to fall by almost 21 per cent to 31.3MMT in 2020/21 after many regions suffered from adverse winter and spring weather conditions. A crop of that size would be 12.4% below the five-year average and would be the second smallest French soft wheat crop in the last seventeen years. According to FranceAgriMer, the French wheat harvest is around 10 per cent complete.
In Russia, the USDA pegged total wheat production at 76.5MMT, down 0.5MMT from last month. The total winter and spring wheat areas are estimated at 15.6Mha and 12.1Mha, respectively. Yields between the two vary dramatically with the winter wheat yield forecast at 3.59MT/ha and spring wheat at 1.68MT/ha. That puts the total planted area at 27.7Mha, up slightly year-on-year, and places the average yield at 2.76MT/ha.
Last month most of the Russian analysts and crop forecasters were increasing their 2020/21 production estimates after weather conditions improved in June. However, poor yields in the early harvested areas has seen a sharp about-turn in sentiment. IKAR lowered their forecast last week from 79.5MMT to 78MMT and SovEcon, who has been quite bullish all season, reduced their estimate from 82.7MMT to 80.9MMT.
The Russian Ag Ministry is calling the wheat crop 75MMT. In their most recent harvest update, the Ministry stated that 9.4MMT of winter wheat had been harvested at an average yield of 3.24MT/ha, up from 2.96MT/ha the previous week. It is only early days, with around 10 per cent the winter wheat area harvested, and the upward trend is expected to continue as headers move into the regions that received more favourable conditions during the growing season.
The WASDE report left Ukraine wheat production unchanged at 26.5MT, down more than 9 per cent compared to the 2019/20 season. Local consultancy ProAgro is even lower at 26MMT, suggesting extreme heat throughout spring in the south and east of the country has severely impacted yields. The area planted to wheat is estimated to be unchanged at 6.8Mha, but Ukraine's projected yield is more than 40 per cent higher than Russia's at 3.9MT/ha.
Perhaps one of the bigger surprises in the WASDE report, from a wheat viewpoint, was leaving Argentinian production steady at a record 21MMT, off 6.5Mha, with an average yield of 2.23MT/ha. Prolonged dry conditions have severely impacted planting of this season’s winter crop and emergence has been poor.
The Buenos Aires Grain Exchange has cut their projected planted area for the second consecutive month to 6.5Mha, the same as the latest USDA number. And late last week, wheat production guidance from the Rosario Grains Exchange was decreased from 21-22MMT to 18-19MMT, citing lack of rainfall in western and northern regions.
Here in Australia, the USDA maths was quite simple: 13Mha at an average yield of 2MT/ha giving a total crop of 26MMT, unchanged from the June estimate. While that may seem low in contrast to numbers that have been bandied around in recent months, the Western Australian crop is living hand to mouth at the moment and needs a serious drink this month to maintain yield potential. Additionally, production in Queensland will be lower than expected as much of the intended area was not planted.
Global ending stocks come in at a very healthy 314.8MMT, generating a stocks-to-use ratio of 40.9 per cent. Taking China out of the equation, ending stocks fall to 152.7MT and the stocks-to-use ratio is much tighter at 24.6 per cent. The key take-home point here is 2020/21 closing stocks in the major exporters are down almost 2MMT compared to June and production, therefore exportable surplus, is declining.
The market reaction to the WASDE report was mixed with the Chicago soft red winter contract closing 1.8 per cent higher but Kansas, Minneapolis and Matif were all relatively unchanged. This was despite the USDA announcing on Friday a sale of 130,000MT of hard red winter wheat and 190,000MT of spring wheat to China.
However, wheat prices have been on the rise for the last few weeks as production issues began to outweigh the pressure of an approaching winter crop harvest north of the equator. Black Sea values, in particular Russia, are the barometer for export values, and it is quite possible that the season-low for that benchmark is now behind us.
The USDA has some lofty wheat export numbers built into their global supply and demand equation for the two major southern hemisphere wheat exporters. Moisture conditions will need to improve in both Argentina and Australia for those expectations to become a reality in 2021. Otherwise, further upward price pressure may materialise.
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