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The wheat market has been in a solid downward pattern for the last two weeks as harvest began in the Northern Hemisphere. This has been helped by managed money (spec crowd) strengthening their bearish view of the market, increasing their short (sold) positions in the wheat markets.

The International Grains Council (IGC) released their monthly global S&D report last week and reinforced the bearish tone across most agricultural markets. Indeed, the report added 6mmt of wheat to the balance sheet (768mmt in total) and a whopping 55mmt increase in corn production.  The forecast 10mmt increase in Aussie production more than accounted for the 4mmt reduction in EU27 soft wheat.

The IGC report also looked at consumption of wheat which was expected to rise in 2020, largely due to increased milling wheat demand.  Feed wheat demand is expected to fall due to the availability of alternative (and cheap) feed grains.

The latest Statistics Canada (StatsCan) field crop report for 2020 records a shift to cereals.  Wheat at 25M acres is up +1.5% from 2019, with expansion primarily in durum wheat. Spring wheat at 17.9M acres is down 4.6%.  Barley at 7.5M acres up +1.4%, and Oats at 3.8M acres up +6.5%. The canola area at 20.8M acres is down -0.8% in 2020, largely reflecting the concerns over Chinese demand.

While the Chinese may not be buying Canadian canola, consumption of the oilseed is incrementally increasing. With global stocks tipped to shrink year on year, expect canola to be one of the few bright lights in the Ag commodity space.

Early Russian harvest numbers have been less than expected, with early wheat yields running at an average 2.4t/ha – down a remarkable 50% year on year. It was always assumed that the early southern areas, which suffered the most from the dry spring conditions, would have a yield penalty.  However, these yields indicate significant damage was done.  However, the central and Volga regions (#1 Russian producing area) are expected to more than compensate, with crops in excellent condition.  As a reflection of this, Russian prices are down $7/t  to $193 FOB week on week.

US harvest of winter wheat continues at pace. 41% of the crop is now in the bin, up from 29% last week and in line with national averages.  Quality is excellent with good test weights and protein. Spring wheat conditions took a dive last week with good to excellent category falling 5% to 69%.  I suspect a week of warm, windy conditions has taken the shine off some of the crops being scouted.  A return to milder and showery weather should help to stabilise this crop.

In late news, the June USDA report (released Wednesday) threw the proverbial spanner in the works. Their US grower surveys revealed a significant reduction in sown area of wheat and corn compared to their March prospective planting estimates. Wheat area is down 2% from 2019 (and now the lowest since records began) and corn fell 5.1% in expected area, from 96.99m acres to 90.2m acres. The immediate effect has been a corn led bounce in prices across all commodities, but production is still likely to tip the balance in favour of supply outstripping demand.

Next week

The USDA acreage report may see the market continue to reposition over the coming days.  However, with the Northern Hemisphere harvest gathering steam and concerns over a COVID19 ‘second wave’, expect prices to resume the path of least resistance lower.

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Data sources: IGC, USDA, Next Level Grain Marketing, Mecardo

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