As Wheat Crops Flourish Worldwide, Prices Slump

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The world is awash in wheat, and prices are hitting lows not seen for more than a decade.

The nearby futures contract price for Kansas City hard red winter wheat hit the lowest price since 2006 on Tuesday. Acreage expansions of winter wheat in the EU and Russia have been in the cards since the fall, but now that the crop has emerged from dormancy, weather has been generally positive. The EU Commission revised higher its common wheat production estimate to 141.3 million tonnes from 140.2 million tonnes, compared with a drought-affected 128.6 million tonnes last season. Several analysts, such as the International Grains Council (IGC), have recently revised up Russia production forecasts. The average guess is now around 80 million tonnes, up from 72.1 million tonnes last season (including Crimea).

India is also projecting a near-record crop of 99.1 million tonnes, according to the Second Advance Estimate from the Ministry of Agriculture. This led the government of India to raise the import duty on wheat to 40% from 30%, effectively making it uneconomical for millers to process foreign supplies. Local wheat prices have fallen more than 11% in 2019 due to high stocks and anticipation of coming supply.

Early forecasts for Argentina wheat point to another record, with the Bolsa de Cereals predicting a crop of 20.6 million tonnes, up from 19 million tonnes last season. Australia is the one negative outlier where farmers are being forced to plant in extremely dry soil as the country suffers the third-consecutive year of drought.

US winter wheat plantings were the smallest in any year since record keeping began in 1909, but good-to-excellent conditions are at a seven-year high. Gro’s Hard Red Winter Wheat Yield Model slowly ticked higher over the course of April, confirming the sanguine conditions.

US old-crop-wheat export sales have been strong the past few weeks as we enter the final part of the June-May marketing year. Hard red winter wheat export prices from the Gulf of Mexico have been lower than comparable EU and Black Sea origins on a free-on-board basis. Gro Intelligence’s export pace model forecasts a final total of 975 million bushels versus 945 million bushels from the USDA. But, even with a bit more demand, carryover stocks will be ample as the US starts to harvest the winter crop in late May.

US spring wheat planting is delayed due to excess moisture in the Dakotas and Minnesota, which will likely persist for a few more weeks. But even the risk of prevent-plant area is not enough to support spring wheat prices as Canada is expected to increase spring wheat acreage 12%, and for all wheat 3.8%, on a year-over-year basis, according to StatCan. The trade dispute with China is motivating Canadian farmers to switch away from canola to wheat.

The USDA will release its first 2019/20 global wheat balance in the WASDE report on May 10. Given what is known about the winter wheat crops so far and global balance forecasts from analysts like IGC, expectations are for another season of ample supplies of wheat.

The chart on the left shows the progression of Gro’s yield model for hard red winter wheat for the US and the three major producing states. Yield has improved in the last few weeks. On the right, winter wheat conditions show recent improvement to a seven-year high.

The chart on the left shows export prices from major origins, which have been in a steady decline since the beginning of February. US hard red winter wheat prices are the lowest among similar-quality exports. The chart on the right shows generally above-average NDVI readings for Russia and Ukraine winter wheat areas.

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