As northern hemisphere harvests were underway, global wheat markets were pressured as we commenced the 2020/21 marketing year. However, recently there has been worries over the global wheat supplies as many key producers revise the production down.
The latest WASDE report says the outlook for 2020/21 U.S. wheat this month is for larger supplies, lower domestic use, unchanged exports, and increased stocks. Wheat production for 2020/21 is reduced 53 million bushels to 1,824 million.
Food demand for the 2020-21 crop held steady at 964 mb, but USDA lowered feed and residual use 10 mb to 90 mb. That brought down total domestic use 10 mb to 1.115 bb. The export forecast remained the same at 950 mb.
Ending stocks for the 2020-21 crop were increased to 942 mb in the report, up from 925 million bushels last month.
The average farm-gate price for the 2020-21 crop remained at $4.60 a bushel as well.
USDA is still forecasting another record world wheat crop for the 2020-21 marketing year — 769.3 mmt — although that forecast declined from last month. USDA expects European production to decline by 1.5 mmt, primarily due to reduction in France and Spain. Russia production was cut by 500,000 metric tons while Morocco’s was slashed by 800,000 mt.
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Wheat Production Down
In France it’s predicted that production will be down 20.8% year-on-year at 31.3Mt, according to FranceAgriMer. Furthermore, European exports are revised down 6.3% year-on-year to 7Mt.
Persistent dry weather along the Pampas grain belt in Argentina has meant the Rosario Grain Exchange lowered its 2020/21 harvest estimate to a range of 18-19Mt from 21-22Mt.
In the Black Sea region, ProAgro also cut its forecast for Ukraine 2020 wheat harvest to 26.07Mt from 26.65Mt. Also cutting their exports for 2020/21 to 17.8Mt down from 18Mt, due to poor weather. Moreover, wheat yields in Russia do not look promising as harvest commences, raising questions over their total production. On Monday agriculture consultancy SovEcon downgraded the Russian wheat forecast for 2020 down to 80.9Mt down from 82.7Mt.
Prices
Domestic sentiment is bullish towards wheat as we head into a deficit. What is critical to note is this short-term global support to the market is momentary, and sentiment can quickly change.
November 20 wheat futures hit highs of £175/t in late March, and again in late May. As we near these highs again, there are still some risks to consider UK wheat prices.
Although there have been some revisions down to some key wheat producers which is supporting prices, we are still going into a global surplus. Sterling is weak which is insulating our domestic prices, but successful Brexit negotiations could offer support.
Despite the UK market being supported by the small crop, we can’t ignore maize. December 20 Chicago maize futures stand at a massive £58/t discount to November 20 UK wheat futures.
UK futures will remain at the top of global markets due to our small crop and import parity, but that doesn’t mean that prices can run away higher and higher unless we see further reductions to supply outlooks in major exporters.