Weathering the Market: World Wheat Production Predicted at Second Highest on Record.
By US Wheat Associates
Geopolitical issues and weather may push the market up and down short-term, but in the July 11 World Agricultural Supply and Demand Estimates (WASDE) report, USDA still predicted the world’s suppliers will have a substantial wheat crop to sell this marketing year.
According to the July 18 USW Price Report, renewed fears of geopolitical tension in the Black Sea region following the crash of Malaysia Airlines Flight 17 in eastern Ukraine pushed futures higher the day of the crash, but markets posted sharp losses the next day as concerns subsided. To date, Ukrainian ports are reported as operating normally.
Extreme weather issues also continue to hinder Northern Hemisphere wheat crops. For the U.S. hard red winter (HRW) crop, severe drought conditions reduced harvested acres and yields. In contrast, analysts expect excessive rain to reduce crop quality in both the European Union and Canada.
Despite crop condition challenges in these areas, USDA estimated 2014/15 global wheat production will reach 705 million metric tons (MMT), the second highest on record, and down just 1 percent (9.0 MMT) from 2013/14. Combined with slightly lower expected world beginning stocks of 184 MMT, USDA predicted global wheat supplies of 888 MMT, 2.19 MMT lower than 2013/14.
According to USDA, world wheat trade will fall 8 percent from the prior marketing year to 152 MMT in 2014/15, still 4 percent greater than the five-year average. As a result, supplies will slightly exceed use, according to USDA, who projected global ending stocks 1 percent higher than the prior year at 189 MMT. Of note, 33 percent of global ending stocks are attributed to China.
For the United States, USDA reported a decline in beginning stocks at 16.1 MMT, 25 percent below the five-year average and the lowest since 2008/09. For this year’s crop, USDA projected U.S. wheat production to fall 7 percent to 54.2 MMT, with an increase in hard red spring (HRS) wheat more than offsetting declines for the other classes. The HRS crop in the northern plains has benefitted from abundant soil moisture and yields are forecast as above average (see story below).
USDA also predicted U.S. wheat exports will decline 24 percent to 24.5 MMT, below the five-year average of 29.5 MMT. As a result, U.S. ending stocks are expected to increase 12 percent to 18.0 MMT, still below the five-year average of 21.2 MMT.
Canadian wheat production and trade numbers will also be down, according to USDA. USDA estimated Canadian wheat production to fall 25 percent from the record 37.5 MMT in 2013/14 and to equal the five-year average at 28.0 MMT. Additionally, due to a smaller crop and sustained logistical issues, USDA predicted Canadian exports will fall 7 percent to 21.0 MMT.
The WASDE report listed other major wheat exporters with small production and trade decreases for this marketing year. Black Sea wheat production could reach 87.5 MMT, down slightly from 88.3 MMT in 2013/14, according to USDA. USDA also reported Ukrainian exports down 500,000 MT to 9.0 MMT but still 26 percent greater than the five-year average.
Conversely, USDA estimated a 19 percent increase in Argentinean production in 2014/15 to 12.5 MMT, still 3 percent below the five-year average. As a result, USDA projected Argentina’s exports to rebound to 6.5 MMT, up from 2.0 MMT the prior marketing year. Despite an increase in crop production, however, political policies continue to cause uncertainty for Argentina’s wheat farmers and export licenses are not guaranteed. Brazil, one of Argentina’s largest customers, continues to purchase wheat from outside the Mercosur trading block.
Finally, USDA raised EU wheat production 1.6 MMT, but also increased EU wheat feeding 1.0 MMT as wheat quality is expected to suffer in the lower Danube region due to excessive rainfall in recent weeks.
Overall, advancing Northern Hemisphere harvests and expectations for plentiful global supplies could continue to weigh on the world markets, even with short-term fluctuations. As always, the United States will continue to have a reliable supply of high quality wheat for the world’s buyers to purchase.