AS OCTOBER and November bring the start of harvest of southern hemisphere wheat crops, while northern hemisphere winter wheat plantings take place, as US corn and soybean harvest advances rapidly and while over in Brazil and Argentina plantings of those same crops is well advanced, world markets wait for supply/demand pressures somewhere to tip the scales, as Peter McMeekin explains.
The United States (US) wheat and corn futures markets have been relatively range-bound over the past few weeks and appear to be searching for the next big swing story to determine longer-term direction.
The global wheat production picture for the 2017/18 season is nearing finality, with Argentina and Australia the only two major producers still to harvest and complete the supply equation. The markets appear to have factored in the local production downside as well as the record Russian crop.
In the most recent World Agricultural Supply and Demand Estimates (WASDE) report released by the United States Department of Agriculture (USDA) this week, global wheat production was pegged at more than 751 million tonnes (Mt). That is only 3Mt lower than the production record set last season. This follows four consecutive years of record production. Additionally, the carry-out is forecast to increase to a record 268Mt on the back of lower feed demand.
Seeding of the world’s next wheat production cycle is also reported to be reasonably well advanced in most countries. In the US, the winter wheat crop was quoted at 75 per cent (pc) planted at the end of last week. This is compared to 60pc a week earlier and a five year average of 80pc.
The French winter wheat plant is said to be 47pc complete. However, there are murmurs of quite varied conditions in other parts of the European Union, which are delaying the planting program.
In the south-west, through countries such as Spain and Portugal, drought conditions persist with very little rain in the past six weeks and temperatures well above average. This will delay sowing, but the situation is not considered desperate at this stage.
At the other end of the scale, the rain-delayed harvest and subsequent wet conditions are hampering the new crop planting program in parts of the north-east, with countries such as Denmark, Estonia, Latvia and Lithuania all reporting delays.
In the former Soviet Union countries of Russia and Ukraine, the winter wheat sowing program is far more advanced, running at 90pc and 93pc respectively. The Black Sea region also continues to rule the wheat export market, dominating the most recent Egyptian tender. As a result, US exports continue to struggle and are running at around 8pc below last year’s pace.
On the summer crop front, the US corn harvest has been delayed by wet weather and is well behind expectations. As of Sunday, the USDA Crop Progress report quoted it at 38pc complete, up from 27pc the previous week. This compares to the five year average of 59pc. However, as we have seen in the past, the crop can come off extremely fast once the weather conditions are more favourable.
The soybean harvest had a huge week and is now 70pc completed according to the latest USDA summary. This compares to 49pc only a week earlier and the five year average of 73pc for the same point in the season.
The South American summer crop planting program is in full swing. In Brazil, the world’s largest exporter of soybeans, planting was around 20pc complete as of late last week. This compares to 30pc last year and a five year average of 28pc. The Brazilian corn planting program also is well advanced, being reported at 43pc completed, versus 52pc for last year and the five year average.
Across the border in Argentina, it is very early days for the soybean seeding program. However, the corn program is in line with expectations, running at 28pc completed, compared to 35pc last year and a five year average of 29pc.
So what conclusions can be drawn? Firstly, the world is still flush with wheat, thanks to a run of huge production years. Planting of the next crop appears to be progressing well, on the whole, and there do not appear to be any glaring red flags.
On the summer crop front, US production has been factored into current values and the South American campaign is not raising any huge concerns at this point in the season.
In nautical terminology, it appears to be “steady as she goes”.
Source: Nidera Australia Pty Ltd, a member of the COFCO International Group.