Many winter cereal crops in Argentina are suffering from the impact of drought and frost damage.

WHILE global wheat production remains at a record level, the USDA reduced production, consumption and trade worldwide in the 2022-23 marketing year in the latest rendition of its World Agricultural Supply and Demand Estimates, released on October 12.

Total wheat supply across the globe was lowered by 1.9 million tonnes (Mt) month on month to 1057.71Mt after the USDA slightly increased this season’s opening stocks but decreased global production by 2.22Mt to 781.7Mt.

Both the Russian and Australian production numbers were left unchanged. Production in the United States was reduced significantly from 48.52Mt in the September report to 44.9Mt this month on the back of a decrease in both harvested area and yield. US imports, mainly from Canada, were increased slightly to compensate for the lower supply. Exports were also decreased from 22.45Mt to 21.09Mt, which would be the lowest since 1971-72.

Drought bites in Argentina

Severe drought continues to downgrade the Argentinian crop, with the USDA dropping production by 1.5Mt to 17.5Mt. However, local estimates are lower again, with the Rosario Grains Exchange decreasing production to 16Mt last week and the Buenos Aires Grain Exchange reporting a further decrease in crop condition and soil moisture but leaving its estimate unchanged at 16.5Mt. The USDA decreased exports by 1Mt to 12Mt. There is no talk of export restrictions just yet, but the government did meet with millers and exporters last week.

Prospects elsewhere solid

Wheat production in the European Union was raised by 2.65Mt to 134.75Mt, primarily on higher government output estimates from Germany and Poland. Domestic consumption in the EU was increased by 750,000t to 108.75Mt, and exports were increased by 1.5Mt to 35Mt. The Ukraine crop remains unchanged at 20.5Mt, but it is challenging to get an accurate picture as the war continues to disrupt farming activities.

The Brazilian wheat crop has been spared the woes of its southern neighbour, with the USDA adding 500,000t to output to land on 9.2Mt. But this is still well below some local estimates that have the crop as high as 11Mt as the harvest ramps up in the country’s centre.

The USDA’s Chinese wheat production number was the same as the September estimate at 138Mt, despite the extremely dry conditions in some regions in recent months, and Indian production is unchanged at 103Mt, regardless of much lower estimates emanating from India itself. The unchanged theme continued for Canada at 35Mt, its third biggest on record, and wheat output in Kazakhstan was pegged at 13Mt, the same as last month.

The two biggest surprises were the static Russian and Australian production estimates compared to last month. The USDA has the Russian crop at a record 91Mt, but Black Sea market analyst Sovecon is now saying it could transcend the historic 100Mt threshold. Grain is reportedly piling up across the country as the war with Ukraine stymies export volumes via the Black Sea. There is now talk of Russia abolishing its grain export quota.

Upside for Australia

The Australian wheat crop has been pencilled in for 33MMT by the USDA, but in reality, it is probably 20 per cent higher today. Sure, some paddocks didn’t get planted in New South Wales because it was too wet. And crop hygiene has been severely hampered by the wet winter and early spring in many regions, reducing production. But the planted area is still relatively big, and the marginal areas of the state are in for a bonanza.

The crop in Western Australia is huge and could challenge last year’s record. Likewise, in South Australia, with a record crop on the cards. Reports from SA’s Eyre Peninsula suggest it will certainly be one for the history books in that part of the state. Planting and growing conditions in Victoria have been much better than last year, and the same goes for Queensland, especially Central Queensland, where a big reduction in the chickpea area went straight to wheat.

However, export capacity constraints will likely stifle Australian exports, leading to higher ending stocks. That said, a repeat of this year’s pace, on track for 28Mt, would be 3Mt higher than the USDA’s October export estimate.

Coarse grain drops

The global coarse grain production estimate in October is down 3.82Mt compared to last month at 1459.8Mt.  Total supply is down 8.38Mt after the USDA revised opening stocks down by 4.56Mt and global consumption was decreased by 5.7Mt to 1466.91Mt on the assumption that demand will have to be rationed.

With global opening stocks 5.13Mt lower month on month, and international production down by 3.84Mt to 1168.74Mt, global corn supply took close to a 9Mt hit in October. The USDA revised domestic consumption across the globe down by only 5.63Mt, and trade was relatively unchanged, culminating in relatively tight closing stocks of 301.19Mt, down 3.34Mt compared to last month’s estimate.

US output was decreased by 1.24Mt due to a reduction in yield to 171.9 bushels per acre, or 10.8t per
hectare. Total US supply is 5Mt lower when coupled with a 3.75Mt decrease in opening stocks. With
consumption unchanged, exports were decreased by 3.18Mt accordingly.

The other significant change to the corn balance sheet was in the EU, where total supply was decreased by 2.3Mt after opening stocks were increased by 300,000t and production fell by 2.6Mt to 56.2Mt. France in the west and Bulgaria, Hungary and Romania in the east were the poor production culprits.
Worldwide barley production is forecast to increase from 147.72Mt in September to 149.02Mt in October, thanks primarily to a 1Mt increase in EU output to 51.1Mt. Australian production was untouched at 12.2Mt, maybe 2Mt shy of local estimates. The Azerbaijan crop was upgraded by 150,000t to 1.1Mt, and the Argentinian crop was cut by 200,000t to 5.1Mt due to the La Niña-induced drought.

Wild cards in China, India, US

On the whole, last week’s report was relatively benign for wheat and coarse grains. There appears to be some fat in the Indian wheat number that will require trimming down the track. It is tough to ascertain the impact of the dry in China; suffice to say, it will be much worse than the regime allows the western world to see. To the upside are the Russian and Australian numbers that will more than compensate for losses elsewhere.

Corn has the biggest challenges with the European production issues, slow Ukraine exports and more downside to US production if the dry continues. But the biggest challenge facing the US and global corn supply at the moment is the Mississippi River. Navigation is at horse-and-cart pace in some places, severely restricting US export potential. Logistics competition among commodities is growing, with beans winning out at the moment. All this places increased pressure on South American production, Brazil in particular, which is pencilled in for record output in 2022-23.