Looming harvest pressure has recently pushed leading wheat price indicators towards 10-month lows. The world crop is still seen a record one, around 770m tonnes, and world starting – and carry-out - stocks are also expected to rise to largest ever levels. While EU and Ukrainian crop estimates have been trimmed again in the past month or so, Russian and Indian forecasts have been increasing. Some caution may still be required towards the biggest single component in this season's jump in world output - an expected 11m tonne rebound in the Australian crop after two years of drought-pinched output. While the weather has promised a much better start for the Australians this year, sowing only recently got underway and the harvest comes towards the latter end of the year. The Northern hemisphere crops will also need the right weather in the run-up to and during harvests, to ensure adequate milling quality wheat. But if the weather stays stable, the markets will continue trading an abundant, even burdensome, supply.

The global wheat consumption forecast remains about 18m tonnes under production but, as mentioned in earlier reviews, the resulting, massive global stockpile will not all be available to the market – just over half of it locked away in China (and much of that probably of dubious food quality).

On the bellwether CBOT futures market nearby wheat deliveries recently slumped just below US $4.70 per bushel – about $173/tonne – not quite as low as the sub-$4.20s where the market bottomed out in September last year when supply was calculated about 25m tonnes smaller than this season's.

European wheat values broadly followed the US trend but lost less value amid this year's domestic supply/demand scenario of smaller crop and surging European exports (recently plus 66 percent on-year and well over the five-year average).

More recently, both markets have come well off their lows amid some trimming of the top crop estimates and a firmer trend in coarse grains, but that trend may now be stalling.

Some of the estimates in the world crop total remain moving targets. Russia had been placed around 77m tonnes versus the disappointing average 72.6m of the previous two seasons. Some local analysts think it can go two-to-four million tonnes higher, if not all the way back to the 2017 peak of 85m. That should allow Russia, usually among cheapest export sellers, to ship a few million tonnes more this season, compensating for a likely decline in exports from Ukraine, where the crop is expected to drop by 2.5/3.0m tonnes to 26.5m due to lower planted area and dry weather. Some local Ukrainian analysts slashed their wheat harvest estimate to 23m, suggesting a bigger hit on exports and less competitive prices going forward. Ukraine may also have a smaller milling wheat component this year However, Kazakhstan is expecting a bigger harvest and could ship out almost two million more.

The EU crop leads losses this season, the Commission recently cut its total soft wheat crop forecast by 4.3m to 117.2m tonnes and export potential by 1.5m to 25m tonnes versus last year's upwardly revised 34m. The French crop has had a tough time with the weather and, given recently low ratings (the worst for nine years), may struggle more than usual to meet quality standards in some export markets.

Australia, Russia, Argentina and the North Americans should easily be able to fill the EU gap in a year when world wheat imports may shrink by about two million tonnes (despite more going to China and North Africa).

One or two shifts are noted in the breakdown of North American output. In the US, spring wheat area is turning out lower than expected and crop condition ratings have recently declined amid dry weather. Quality hard spring wheats made up about 27 percent of last year's total US wheat crop. US winter wheat, the largest export component meanwhile remains in worse condition than last year's but has had some better than expected harvest yield results. And still carrying forward over 28m tonnes of old crop stocks, the US remains in a strong position to exploit any gaps left by other suppliers, provided a strong dollar doesn't spoil its competitiveness.

Canada's government also lowered its own spring wheat planted area forecast, the largest component of that crop. Yet total Canadian wheat area still rose as durum and winter wheat crop sowings increased. The later planted Canadian spring crop has also faced some dryness issues, especially in key province Saskatchewan although some forecast rain was expected to bring some relief.

Other recent wheat market news

Recent Chinese purchases of US wheat continue to feed ideas that the 'phase one' trade pact between the two countries will involve much larger wheat sales. USDA recently forecast PRC would raise wheat imports (from all sources) this season to some six million tonnes from last year's 4.8m. Larger sales are expected to North African countries facing a dry weather hit to their crops but worries persist that corona virus may depress broader food import demand, especially from cash-strapped oil exporting countries.

On the bear side, India has a record large crop but lack of adequate storage – a situation that may force the government to adopt a more aggressive, i.e. subsidised export programme – which could depress world wheat prices. Yet that could unleash more import demand to help stabilise the situation.

Russia may avoid using export controls (employed last year to protect domestic supplies) for the rest of 2020 but have these at hand if needed for first half 2021.The earlier-harvesting former Soviet countries usually 'front-load' their export sales to win custom while rival exporters are still bringing their crops in.

Wheat has recently drawn some support from a rebound in maize prices, the lower US crop forecasts and hopes that the negative coronavirus impact on overall grain consumption may be easing. But barring some late weather upsets, the overall picture of plenty suggests prices may struggle to rise much for the time being.

Export competition remains a key factor for wheat in the new season just begun. Early signs point to a major shift away from Europe towards Australia, Argentina and Canada with Black Sea suppliers holding their combined share steady.

The USDA has left its first US seasonal price forecast for 2020/21 unchanged versus this years' at $4.60 per bushel (ex-farm).

CBOT futures point to a modest 5.5 percent gain in wheat value this time next year. Paris futures suggest prices similar to current deliveries.

With US and European demand for flour and pasta going through the roof in second quarter 2020 amid covid-wary stockpiling, there was little initial concern this sector would see consumption cutbacks - although miller demand (exports too) appeared to have slackened off recently. Some consumption loss might be expected in feed or ethanol sectors, threatened by reduced meat and bio-fuel use although recent anecdotal evidence suggests these sectors might be faring better than hoped. As the main grain in feed/industrial use, corn has been harder hit, but wheat has to respect the coarse grain's price trend.

Corn surplus despite US planting cut

The big surprise this month was a far lower than expected official estimate of US planted corn acreage for 2020, some five million acres below the first survey of farmers' intentions. Despite still leaving the US market in clear surplus, on paper at least, it bounced CBOT prices almost 12 percent higher after a brief spell at six-week lows. After a strong start, US crop ratings are high and weather has been mostly non-threatening, suggesting the crop will still be larger than average, perhaps not far off the previous (2016) peak of 385m tonnes.

On present demand pointers, this keeps US supply/demand on course for stock growth in the new 2020/21 season that starts September 1st. The loose outlook was repeated in the US quarterly stocks report, showing these far over trade estimates, so implying a (not unexpected) steep drop in demand compared with the same period last year, mainly due to less corn use in the giant bio-ethanol sector.

The USDA has predicted US ethanol production will bounce back next season from 123m to 132m tonnes as the covid factor's influence on fuel consumption (and competing crude oil value) starts to fade. Not all are convinced while the risk of a covid 'second wave' persists but the crude price has staged an impressive recovery in recent weeks.

The rally in US corn prices was also helped by new US sales to China, which traders hope will help imports (from all sources) repeat this season's jump from 4.5m to some seven million tonnes. That might help US exports in total get nearer the official new season forecast of 55m tonnes (plus eight million) again something which not all analysts think is assured as a third successive season of larger than usual Brazilian, Argentine and Ukrainian crops looms (combined around 196m tonnes versus the average 153m of the previous two seasons).

Europe itself is expected to produce about 68m tonnes of corn this year versus the previous four-year range of 62/67m. Despite larger imports, the EU's corn consumption has weakened this season with a shift to record, cheap supplies of wheat.

Global corn consumption is expected to rise about 40m tonnes next season, led by the increases above in US offtake and by larger usage in Europe and China. Still relatively low prices should help boost demand. The USDA sees the average US ex-farm price weakening from $3.60 to $3.35/bu (about $132/tonne) while CBOT futures have them about eight percent higher this time next year and Paris futures some four percent up.

Ample oilmeals

The USDA also surprised the oilseed markets with a smaller than expected estimate for US 2020 planted arera. Traders had expected a big shift from maize (1.8m acres) but USDA now reckons the increase (versus spring planting intentions) was only some 300,000 extra bean acres. If correct and on trend yields, it points to a 112.5m tonne crop versus last year's weather reduced 97m and the record 120m plus crops of the previous two years.

Brazil came out on top this year with a record 126m tonne crop which the USDA thinks could get to 131m in 2021. Argentina, which eased this year to 50m from 2019's 55m tonne crop, is expected to edge that up to over 53m in 2021. While global soya output was reduced by 24m tonnes or some 6.5 percent this season, the trend is rising for 2020/21, this summer's US and autumn/winter's Latin American weather permitting.

USDA underlines the fairly loose outlook with a seasonal US farm price prediction for beans of just $8.50/bu (about $312/tonne) the same as this season and last with meal holding up slightly better at $300. CBOT forward futures has prices of beans a year hence similar to current nearby positions.

As has often been the case, soya, the leading meal provider, will contribute virtually all the growth in the new season's global supply of oilmeals in total – about nine million tonnes, which should cover the anticipated increase in world oilmeal consumption (led by China, if the USDA forecast is correct). Most of the increase in whole bean exports will be down to the bigger US crop while Argentina, as the leading meal exporter, will be mainly responsible for growth of shipments in that sector.

Global rapeseed meal consumption peaked as far back as 2017 and is likely to remain flat in the year ahead despite expected bigger crops in Canada, Australia and the firmer Soviet countries.

European supplies have been crimped by lower crops in recent years and will again be supplemented by big imports from Ukraine, Australia and Canada, probably heavily 'front-loaded' as they were last season, to guarantee smooth supply flows. However, sunflowerseed crops and production are expected to repeat last year's bigger contribution to global supplies. Overall, oilmeal costs should remain restrained by the relative abundance of market leader soya.

The US market has drawn support from strong domestic crush based heavily on good meal demand, emboldening the USDA to predict higher usage in 2020/21.

Canada's government forecast canola planted area at 20.77m acres (+160,000) within trade guesses and less than one percent below last year's figure. The EU crop is seen similar to last year's 16.5/16.8m tonnes. The EU starts the new season with low stocks but has been restrained by fears of 'second-wave' of covid lockdowns continuing to reduce demand for vegetable oils in bio-diesel transport fuels as well as spoiling a hoped-for return in restaurant usage (oil being the primary crush earner and meal the by-product). EU crushers have so far imported 43 percent more rapeseed than last season at 5.78m tonnes.

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