Wheat markets finally have something to get excited about.
Production prospects are falling in many key exporting regions, and that is boosting futures markets.
The U.S. Department of Agriculture lowered Russia’s production by 3.5 million tonnes to 68.5 million tonnes in its latest supply and demand report.
It is drier than normal in the south, which is Russia’s winter wheat area, and excessively wet in Siberia and the Urals, which is its spring wheat region.
The USDA also shaved one million tonnes off of the European Union’s production number, dropping it to 149.4 million tonnes.
Futures markets rallied after the release of the report, and there could be further appreciation because other reports and analysts suggest the USDA didn’t go far enough in its cuts.
Arlan Suderman, chief commodities economist with INTL FCStone, believes the biggest miscalculation could be with U.S. 2018-19 wheat ending stocks.
The USDA is forecasting 946 million bushels, but Suderman believes it will be 815 million bu. because of a more robust export program caused by shrinking crops around the world.
While that isn’t exactly a bullish number, he believes it would be enough to get prices heading in the right direction.
European Union grain trade association Coceral has a different take on EU wheat production. It is forecasting 147.7 million tonnes of total wheat production, which is almost two million tonnes lower than the USDA’s number.
The USDA kept its Ukrainian forecast unchanged at 26.5 million tonnes or about the same as last year.
By contrast, Ukraine’s hydrometeorological centre is calling for a 15 to 30 percent reduction in the crop, while other Ukrainian weather forecasters are predicting a 24 million tonne crop, according to a Reuters report.
The USDA also kept Australia’s crop unchanged at 24 million tonnes, but the Australian Bureau of Agricultural and Resource Economics and Sciences has already reduced its estimate to 21.9 million tonnes because of drought and a forecast of more dry conditions ahead.
“The Bureau of Meteorology’s seasonal rainfall outlook for June to August 2018 indicates that a drier-than-average winter is likely for most Australian cropping regions,” said the June 12 report.
Neil Townsend, senior market analyst with FarmLink Marketing Solutions, said he is starting to feel better about wheat price prospects and not just because of mounting supply-side issues around the world.
“Is there a sexy, exciting demand story? No. But demand is steady to showing signs of growth,” he said.
Earlier this spring FarmLink was telling its customers to be 60 percent sold on new crop wheat by Christmas and sell the remaining 40 percent in the second half of the year.
“We basically flipped that to a 40-60,” said Townsend.
He said it is too early to be downsizing Australia’s wheat crop, but if drought persists in eastern Australia, that could affect two to three million tonnes of wheat that competes directly with Canada Western Red Spring and Dark Northern Spring in international markets.
Townsend also noted that U.S. farmers have more grain storage than they used to have and can hold out for higher prices.
Another factor that has gone under the radar is that Canada’s 2017-18 wheat exports were 15 percent of the previous year’s pace as of the end of April, which could result in lower-than-expected ending stocks.
He was also encouraged by the USDA’s average U.S. corn yield estimate of 174 bushels per acre.
“That’s border line tight,” he said.
“That’s also supportive of wheat.”