WHILE still a record, it appears that prospects for 2020-21 global wheat production may have peaked as a number of major producers’ crops come under yield pressure.
The United States Department of Agriculture (USDA) released its latest World Agricultural Supply and Demand Estimates (WASDE) on Friday, and total wheat production was reduced by a tad over 4 million tonnes (Mt) to 769.3Mt.
The USDA reduced domestic production to 49.6Mt, down 1.5Mt from last month on the back of record low plantings of 14.84 million hectares (Mha) and an average yield of 3.34t per hectare (t/ha). This will only be the fourth US wheat crop below 50Mt since the 1981-82 season, when the US harvested its largest ever crop of 75.8Mt. The US winter wheat harvest is reported to be 68pc complete as of last Sunday.
The WASDE report left Canadian wheat production unchanged at 34Mt, 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.
Cuts for Europe
Wheat production in the European Union and the United Kingdom now sits at a combined 139.5Mt, also down 1.5Mt from June. This is a year-on-year decrease of 15.4Mt, and is 10.2Mt below the five-year average. The planted area is estimated at 25.3Mha, unchanged from last month, but 900,000ha below last year, and 4pc below the five-year average. Yield is set at 5.52t/ha, down 1pc from June and 7pc from last year.
Soft wheat production in France, Europe’s biggest wheat producer, is forecast to fall by almost 21pc to 31.3Mt in 2020-21 after many regions suffered from adverse winter and spring weather conditions. A crop of that size would be 12.4pc below the five-year average and would be the second-smallest French soft wheat crop of the past 17 years. According to FranceAgriMer, the French wheat harvest is around 10pc complete.
In Russia, the USDA pegged total wheat production at 76.5Mt, down 0.5Mt 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 3.59t/ha and spring wheat at 1.68t/ha. That puts the total planted area at 27.7Mha, up slightly year-on-year, and places the average yield at 2.76t/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 79.5Mt to 78Mt and SovEcon, who has been quite bullish all season, reduced their estimate from 82.7Mt to 80.9Mt.
The Russian Ag Ministry is calling the wheat crop 75Mt. In its most recent harvest update, the Ministry stated that 9.4Mt of winter wheat had been harvested at an average yield of 3.24t/ha, up from 2.96t/ha the previous week. It is early days, with around 10pc the winter wheat area harvested, and the upward trend is expected to continue as headers move into regions that received more favourable conditions during the growing season.
The WASDE report left Ukraine wheat production unchanged at 26.5t, down more than 9pc from the 2019-20 season. Local consultancy ProAgro is even lower at 26Mt, 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 40pc higher than Russia’s at 3.9t/ha.
Steady Argentina surprises
Perhaps one of the bigger surprises in the WASDE report, from a wheat viewpoint, was leaving Argentinian production steady at a record 21Mt from 6.5Mha, with an average yield of 2.23t/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 its projected planted area for the second consecutive month to 6.5Mha, the same as the latest USDA number. Late last week, wheat production guidance from the Rosario Grains Exchange was decreased from 21-22Mt to 18-19Mt, citing lack of rainfall in western and northern regions.
Here in Australia, the USDA maths was quite simple: 13Mha at an average yield of 2t/ha giving a total crop of 26Mt, 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.
Ending stocks healthy
Global ending stocks come in at a very healthy 314.8Mt, generating a stocks-to-use ratio of 40.9pc. Taking China out of the equation, ending stocks fall to 152.7Mt and the stocks-to-use ratio is much tighter at 24.6pc. The key take-home point here is 2020-21 closing stocks in the major exporters are down almost 2Mt compared to the June number, and production, and therefore exportable surplus, is declining.
The market reaction to the WASDE report was mixed, with the Chicago Soft Red Winter wheat contract closing 1.8pc higher but Kansas, Minneapolis and MATIF all relatively unchanged. This was despite the USDA announcing on Friday a sale of 130,000t of Hard Red Winter wheat and 190,000t 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, and the Russian price in particular, are the barometer for export values, and it is possible the season low for that benchmark is now behind us.
The USDA has some lofty wheat export numbers built into its 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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