New-crop wheat story turns bullish

Guest Author May 16, 2023

This farm in central western Kansas shows a field of winter wheat at right that has been terminated, while the one on the left is hanging on. These fields were photographed May 5, when crops are normally knee high. Photo: Ramsey Farms, Kansas

THE bulls came roaring back into the wheat complex on Friday following the release of the USDA’s latest World Agricultural Supply and Demand Estimates. The May report is the USDA’s first peek at new-crop balance sheets for the United States and across the globe, and wheat certainly stole the show with a much lower-than-expected US winter wheat production estimate against mildly bearish corn and soybean projections.

Immediately following the report’s release, the nearby Kansas City Hard Red Winter wheat futures contract surged to almost US$9 a bushel (A$497 per tonne) before finishing the day at US$8.79/bu (A$486/t), 4.4 percent higher than Thursday’s close.  Chicago Board of Trade July wheat touched US6.54/bu (A$361/t) shortly after the report hit the wires but closed just 1.3pc higher on the day at US6.35/bu (A$351/t). Minneapolis wheat futures also surged post-report but cooled as the day progressed to close only 1.1pc higher at US$8.46/bu (A$467/t).

HRW abandonment figure startles

US winter wheat production of 31 million tonnes (Mt) came in well below the average trade estimate and is only fractionally higher than last year’s multi-decade low of 30Mt, despite a year-on-year increase in the planted area of 1.7 million hectares (Mha). The average yield of a tick over 3t/ha is down from 3.16t/ha last year. However, the biggest surprise was the huge Hard Red Winter abandonment, with farmers forecast to harvest only 67.4pc of the planted area. This is down from 70.5pc last year and is the lowest ratio since 1917.

The USDA expects total new-crop wheat production in the US to be 45.16Mt, up from 44.9Mt in 2022-23.  The USDA pegged international wheat production for the 2023-24 season at 789.76MMT, up slightly from 788.26Mt in the current season. Domestic consumption across the world came in at 791.7Mt, down from 794.65Mt in the 2022-23 marketing year. Global exports for 2023-24 were pencilled in at 209.72Mt, down from 215.24Mt and carry-out stocks are expected to decrease from 266.28Mt in the current season to 264.34Mt in 2023-24, the lowest season-ending global stocks-to-use ratio since 2014-15.

Record Russian sales seen

As expected, the Russian crop was decreased from a record 92Mt to 81.5Mt, although the locals still say the 2022 harvest yielded more than 100Mt. The pace of exports since July 1 last year, despite the corridor issues, and the recent willingness to discount old-crop supplies ahead of the 2023/24 harvest certainly support that view.

The most interesting Russian wheat statistic from the USDA last week was an increase in exports from a record 44.5Mt in 2022-23 to another record of 45.5Mt next season despite the smaller crop, emphasising the magnitude of this season’s carry-out. This would no doubt rely on an extension to the Black Sea corridor or an end to the war.

Australian numbers questioned

The Australian wheat crop was reduced from a record 39Mt to 29Mt on talk of a strong El Niño developing in the second half of the year: a safe bet at this early stage in the season, even though the planting program is progressing quite well in most regions. The USDA mysteriously increased 2022-23 exports by 2.5Mt to a record 31Mt which seems extremely optimistic given the dramatic reduction in export margins over the past couple of months. Exports in the 2023-24 season have been pencilled in at 21Mt on the back of the lower production outlook.

The USDA’s 2023-24 season carry-in figure for Australia of just 3.15Mt is ridiculously low; in fact, it is barely pipeline. The USDA, thanks to its Australian equivalent ABARES, has underestimated Australian wheat production in each of the three seasons since the last drought broke, which has compounded the blunder to such an extent that it could easily be using a carry-in figure which is, at best, a third of reality.

Mixed outlook in Americas, Europe

Canadian wheat production was increased by 3.2Mt to 37Mt in last week’s report on the back of quite
optimistic grower planting intentions and trend yields. Should it come to fruition, this would be Canada’s second-biggest wheat crop on record behind 2012-13. However, dryness has set in across much of the Prairies, with accumulated rainfall year-to-date running at one of the lowest levels this century. This is delaying the spring wheat-planting program, which is forecast to account for around 72pc of the total wheat area this season.

Favourable weather conditions across most of the European Union saw the USDA increase the trading bloc’s wheat production forecast by 3.5pc from 134.34Mt to 139Mt. Regular precipitation over the last
couple of months has helped crops after a dry winter. French soft-wheat conditions improved last week to be the best in more than a decade, but drought conditions in Spain and northern Italy remain a concern.

A return to average production in Argentina seems exceptionally optimistic, given the Pampas remain firmly under the grip of the worst drought the country has seen in more than 60 years. Midway through last week, the Buenos Aires Grains Exchange said the El Niño weather phenomenon is unlikely to bring heavy rains to Argentina’s main agricultural areas before September, snuffing any hope of a return to average winter-crop seeding. Last year’s production was seen at 12.55Mt, but the USDA has increased wheat output by more than 55pc to 19.5Mt. New-crop exports were pegged at 13.5Mt, up significantly from 5.5Mt in the current season.

As the war rages on in Ukraine, agricultural production is suffering accordingly. The USDA reduced new-crop wheat output by 21pc from 20.9Mt last harvest to 16.5Mt, on the back of a 19pc decrease in
the planted area. Even this could still be quite sanguine, given the extent of the area affected by land mines and the extreme Russian recalcitrance. Exports were slashed from 15Mt in 2022-23 to 10Mt in 2023-24, leaving a critically low carry-out of just 1.7Mt.

The Black Sea export corridor will be essential to achieving such an export target, and its future is still up in the air. Last week Türkiye’s defence minister expressed confidence that the deal is close to getting extended past the May 18 deadline after further negotiations occurred between Ukraine, Russia, Türkiye and the United Nations.

The result of last weekend’s Presidential election could have a massive bearing on the outcome, with many postulating a defeat for incumbent Erdoğan will see the country shift toward Europe and away from anti-US rhetoric.

The wash-up for global wheat production is a net decrease of 10Mt amongst the world’s major exporters. However, serious questions remain over the near-record forecast for Canada, a return to five-year average output in Argentina and even the Australian estimate, given the forecast for an extremely strong El Niño in the spring.  There is still plenty of water to go under the bridge, especially for Southern Hemisphere crops, before 2023-24 production is locked in.


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