Harvesting a wheat field

The wheat market has borne the brunt of expectations of another big global crop. Bigger crops in Russia, Canada and Australia have more than compensated for poor yields in Europe. The USDA has pegged global ending stocks at 316mmt - an all time record. Again it is important to look at the fact that over half of this stock will be held in China and India and unlikely to ever be traded. But one of the pillars that was supporting wheat prices was the fact that ending stocks in major exporters was tightening. This is not the case anymore.

The USDA released their WASDE report last Wednesday night which while slightly bearish for wheat, did not hold too many surprises. The US saw slight increases in wheat, mainly in the relatively small HRS class.  Perhaps surprisingly the USDA left Russian production at 76mmt, whereas Rusagrotrans (RUS analyst) has it closer to 81mmt.  Aussie production also left at 26mmt, perhaps resisting the temptation to lift it to 28-30mmt, remembering sagely that it is only early August.

Other key points are as follows:

Global production is lower by 3.3mmt to 766mmt (US +0.4, EU -4, RU +1.5, Braz +1.1, Arg -0.5, Ukr +0.5, Kaz -1.0).  Global consumption is lower by 1.45mmt to 750mmt (EU -1.0) based on reduced demand due to COVID-19.  Global ending stocks are higher by 1.95mmt to 316mmt (EU +2) with major exporter stocks higher by 1.4 to 62mmt.  As above, it is prudent to remember that Chinese stocks at 163mmt or 51% of global stocks, India stocks at 31mmt or ~10% of global stocks.

Global wheat prices appear to be buckling under the weight of the Northern Hemisphere harvest.  It is not unusual that the market would follow the path of least resistance in the absence of any major production problem.

With Russia again being the pace setter for prices, it will be interesting to see what happens if there are any logistical issues getting the crop to port.  The big yields in the central key producing region of the Volga have been instrumental in building production late in the Russian harvest.  This region can experience harsh winters which could impact the transport of grain to the southern ports on the Black Sea.  Any hold up may result in a short spike in prices as importers switch origins to maintain supply.

Attention will soon switch to Australian and Argentinian production.  The key markets of Indonesia and SE Asia will be hotly contested this year with Australia looking to reclaim lost market share.

Next week

We have seen over 30c/bu wiped from the Dec ’20 wheat contract this month.  It is hard to argue a bullish rebound with Aussie production stabilising after a dry couple of months.

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Click on graph to expand

Click on graph to expand

Data sources: Rusagrotrans, SovEcon, USDA, Next Level Grain Marketing, Mecardo

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