The first production estimates of the drought-stricken U.S. winter wheat crop reveal it is in worse shape than many thought.
The Wheat Quality Council issued a forecast last week following a three-day tour of Kansas that called for 6.99 million tonnes of production in the biggest winter wheat producing state, down 40 percent from last year’s harvest.
Council members said their forecast represents a maximum potential if the weather co-operates.
As well, the Oklahoma Wheat Commission recently released a forecast calling for 1.84 million tonnes of production in the third largest winter wheat producing state, down 44 percent from last year.
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Informa Economics is now pegging total U.S. winter wheat production at 39.22 million tonnes, down from its March 18 forecast of 40.71 million tonnes.
However, Canadian Wheat Board analyst Neil Townsend said the market had already digested the vastly reduced U.S. winter wheat crop.
Other more pressing issues in North America and abroad are weighing on the minds of market participants, he added.
“The uncertainty about the spring wheat or the corn is much, much greater than the uncertainty right now about the hard red winter crop,” he said.
Townsend estimates the United States could lose one million acres of corn and see reduced yields on late-seeded crop.
“They can’t afford a 200 to 300 million bushel drop off and that’s probably what you’re looking at right now,” he said.
There is also concern about soft red winter wheat planted in the U.S. corn belt, which is suffering from excessive moisture.
Spring wheat planting is weeks behind. A point will come in June when farmers may decide to shift acres to barley and oats.
Drought is starting to affect wheat crops in northern France, Germany, the United Kingdom and Poland.
“It’s early days but it’s starting to get into those dates when, man, you really want to see some moisture improvement,” he said.
The Russian wheat crop is another big wild card.
Townsend said it is unclear whether winter wheat is in better or worse shape than last year, and there is concern about the spring wheat crop.
“Last year they missed so epochly on their spring wheat crop that this year every little moment where they’re not doing what the market thinks they should be doing is going to have a ripple effect.”
Ukrainian farmers are set to harvest what looks to be a bumper crop.
China received welcome rain May 7-8, which should help ease drought concerns in that country. Townsend has seen government estimates calling for 120 million tonnes of Chinese wheat production.
“There’s no way they’re close to that. They’re around the 112 to 113 million tonne mark,” he said.
Markets are more interested in how much U.S. corn China will import because that will have a bigger impact on overall grain prices.
India has produced a record wheat crop, and the government is contemplating whether it should allow exports.
A supply and demand calculation suggests India could export five to 10 million tonnes to neighbouring countries, but the government also has to weigh food security concerns.
Growers in eastern Australia are thrilled by moisture conditions, prompting analysts to forecast a record wheat crop.
Farmers in Argentina are expected to plant 10 to 15 percent more wheat than last year because of high prices and good weather conditions.
Townsend said these global wheat market developments make him less bearish on wheat than he was in March when he thought there would be a big global surplus.
“The biggest change since then is there are real and tangible concerns about the (U. S.) spring wheat planting and about the Canadian planting,” he said. “It’s a little more TBD – to be determined.”
Townsend said a significant expansion of wheat stocks this year is more unlikely today than it was two months ago. His best guess is that the world may produce 665 to 668 million tonnes of wheat, down from the 674 to 675 million tonnes he previously predicted.
That is bullish for wheat when combined with the “very real concern” about tightening corn supplies.
Townsend said a lot of the danger signs for wheat are in North Dakota, Western Canada and Germany, which produce quality wheat.
As a result, quality spreads could widen depending on the weather.
