NSW MacDonald Rural Brewarrina Harvest (5)

This week has been all about the impending Northern Hemisphere harvest hitting the pipelines. Despite a raft of supportive news, the noise was drowned out by the prospect of new crop harvest.

In many respects, wheat has been driving the ag commodity markets recently on deteriorating crop prospects in Russia. This had been fully priced into the market but now, the lack of fresh news has seen the market tip over. There is scope for further deterioration of the Russian winter wheat crop with building heat in the southern regions compounding the moisture deficits. SovEcon have this week cut their forecast to 80.2mmt and have a watch on the Spring wheat crop which (somewhat ironically) is too wet.

The rest of the world seems to be tracking OK. Western Europe remains too wet, but this is largely priced in.  Canada has had a dream start to their cropping program after a dry winter. The US is looking for a better than average season. Harvest of winter wheat has started in southern US states; and Western Australia has had a late, but widespread break to the season.

The wheat market is in a state of flux. Russia (and to a lesser extent) Ukraine, have set the price for a few years now. The market has priced in the deteriorating crop but is also cognisant that a lot of wheat is about to hit the waves. As such, this wheat market is hard to read. Spot demand is going to have plenty of offers which will take some heat out of prices. It is thought that the market will have to ration demand at some point – remember 13.5% stock to use is getting tight – but the timing and extent of any rationing remains unknown.

Earlier this week, the Australian crop was put under the microscope with a number of official forecasts getting mentioned in the wires. Firstly ABARES released their crop estimates with wheat at 29.1mmt – up 3mmt from last year – and barley up 700kmt to 11.5mmt on bigger acres in WA. The low canola prices earlier in the year are thought to drop plantings by around 10% to 5.4mmt.  Lentils are expected to be unchanged at 1.6mmt with slightly higher area offset by the dry start in South Australia.

Coincidentally, Rabobank also released their outlook alongside the national forecaster. In summary, overall production for winter crops is expected to reach 46.3mmt, including 27.4mmt of wheat (+5.7% YOY), 10.0mmt of barley (-7.2% YOY), and 5.0mmt of canola (-11.4% YOY). Oats and pulses will lose area this season. Assumptions include the observed dry start in WA and SA and the expectation of an extended spring due to the development of the La Niña weather pattern.

Next week

Prices are likely to be volatile over the coming weeks. Supply of new crop will make any demand highly contestable. However, we will start to get a clearer picture of global supply and demand with a view that supply will be lower year on year.

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Data sources: SovEcon, ABARES, Rabobank, Next Level Grain Marketing, Mecardo

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