For many of the globe’s farmers now seeding crops for harvest next year, the situation looks glum.
That might mean that the psychology of grain markets next February, March and April will turn around, putting grain prices on a higher level than they are now.
Big crops harvested in Ukraine and Russia this year are weighing on global wheat prices this fall, especially for low grade grain. The region has been particularly competitive against European wheat in North African markets. Indeed, while North American quality wheat prices were rising from September to mid October, European and Russian prices were falling.
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But it is now bone dry in the winter wheat areas of Ukraine and Russia, interfering with seeding of the 2006-07 crop.
Ukraine officials forecast a record low winter wheat area of 8.6 million acres, down from 15.6 million last year. They estimate production of seven to nine million tonnes, down from 18 million this year.
There are no detailed seeding forecasts from Russia but the U.S. Department of Agriculture and the International Grain Council say seeded area is likely to be substantially lower.
Some analysts speculate that if bad weather continues in Russia and Ukraine, further threatening the 2006-07 harvest, the countries might curtail exports to ensure an adequate domestic supply.
Brazil soy drop
Turning to soybeans, while the Amazon region has suffered an almost unheard of drought, good rain was received in southern and central regions of the country where soybeans are grown.
However, like farmers everywhere, Brazilian producers are struggling with high energy costs. On top of that were two years of disappointing crops, first from rust and then drought. Analysts now forecast soybean seeded area will drop by about five percent.
Producers there are also suffering from lack of credit and from a strong currency that reduces the
return from every bushel sold in U.S. dollars.
Input use is also expected to drop.
Several Brazilian forecasters expect a crop of 58 to 59 million tonnes. That is up from this year’s drought-ravaged 51.7 million tonnes, but well down from forecasts this time last year that speculated on a 64.5 million crop. That forecast is based on normal yields and reduced acreage, but soybean rust is a serious worry and last week farmers warned that in their weakened financial condition they might not be able to buy fungicide if there is a severe outbreak of the disease.
While warning flags have been posted, it is a long time until harvest and much can change. For example, soy growing areas in Brazil and Argentina had been dry going into the seeding season, but now rain is starting to spread through the region, lowering concerns.
But the problems outlined have the potential to provide a much needed boost to markets in late winter.
