Russia’s crop has been the biggest cause for alarm, but decent precipitation in January and February eased concerns
Winter wheat crops are in good shape on the other side of the Atlantic Ocean, but there is mounting cause for concern in one key region, says an analyst.
There was much angst about Russia’s crop at the start of the season because of dry conditions at planting time.
On Dec. 1, 2020, an estimated 22 percent of the crop was in poor condition. By March 1, 2021, that had shrunk to eight percent due to decent precipitation in January and February.
“That resulted in a notable easing of concern surrounding the upcoming crop,” said William Rutherford-Roberts, agriculture market analyst with StoneX Financial.
Initial production estimates of 76 million tonnes have been increased to around 80 million tonnes.
Favourable weather conditions and the rapid pace of seeding across the European Union have also greatly improved prospects in that important producing and exporting region.
“European Union production is expected to make a strong recovery in the upcoming season,” he said during an April 29 webinar.
“It’s a stark reversal from the extreme difficulties that plagued the 2020-21 winter planting campaign.”
The European Commission is forecasting 134.3 million tonnes of production, nine million tonnes above last year’s output.
The United Kingdom is expected to harvest another 14.6 million tonnes. Combined production of the two regions is forecast to be 3.1 million tonnes above the previous five-year average.
There were also early concerns about Ukraine’s crop, but the condition of the wheat was much better than anticipated coming out of dormancy.
Rutherford-Roberts is forecasting 27 to 28 million tonnes of Ukrainian production and 21 million tonnes of exports, up from an estimated 17 million tonnes this year.
Subsoil moisture levels are considerably better than last year due to a wet January and February, resulting in the improved production prospects.
The biggest red flag overseas is that cumulative rainfall since the beginning of the winter planting season has been below average across the majority of Western Europe.
March precipitation was particularly dismal, and the forecast for the next few months is for more of the same.
“It is well known that spring and early-summer weather are the ultimate determinants of the quantity of the crop,” he said.
The European Centre for Medium-Range Weather Forecasts is predicting below-average rainfall across France, Germany the United Kingdom and southern Russia in May and June.
“Should these models materialize we could see up to four months of below-average rainfall to finish the season, potentially leaving crops in worse-than-expected condition,” said Rutherford-Roberts.
However, the forecast also calls for cooler-than-normal temperatures, which could minimize the damage.
If the dry conditions persist in Western Europe and extend into southern Russia it has the potential to result in reduced supply from both regions, he said.
The wheat-corn price spread on the MATIF futures exchange in France is the lowest it has been since the first quarter of 2017.
If the EU or Ukraine have trouble producing corn crops, it could result in a lot of wheat being consumed by the EU feed market, sending more export demand to Russia.
Russia is going to have a large carryout from last year’s crop due to reduced 2020-21 exports caused by a new floating export tax in that country.
With another big crop on the way, Russian farmers could probably hold out for higher prices if that additional demand materializes.