Production Gains by Major Exporters Boosts World Wheat Crop
By Casey Chumrau, USW Market Analyst
Thanks to generally cooperative weather, world wheat production prospects for marketing year 2013/14 (June to May) continue to improve. In its updated World Agricultural Supply and Demand Estimates (WASDE) report released Aug. 12, the U.S. Department of Agriculture (USDA) increased expected world production by 7.6 million metric tons (MMT) to 705.0 MMT. If realized, it would be the largest world wheat output on record and help restock world supply diminished by low production a year ago.
The world wheat supply forecast remains the single most important factor in risk management and wheat buyers should continue to pay close attention to it. Following is a short summary of wheat crop conditions and outlook for each of the world’s major wheat exporters.
United States
USDA puts total U.S. production at 57.5 MMT, higher than previously forecast but 7 percent lower than last year and below the five-year average of 60.9 MMT. Winter wheat harvest is nearly complete and average yield will be better than expected in many areas. Final abandonment rates are expected to be high due to earlier drought conditions, offsetting higher overall wheat plantings. Although the crop is smaller than average, there should be sufficient high-quality supplies from each class of winter wheat. Soft red winter (SRW) production will likely be the second largest on record at 14.8 MMT, up from the five-year average of 11.6 MMT.
Canada
In its Aug. 21report, Statistics Canada projected a 13 percent wheat production increase from last year to 30.6 MMT. If realized, it would be the fourth largest crop on record and the biggest since 1991/92 when Canada harvested 31.9 MMT. Cool temperatures in July and early August protected the crop during its vulnerable growth stages and warmer temperatures in mid-August accelerated crop development. Both better yield and greater harvested area will contribute to the increased output.
European Union
In spite of a long winter and an unusually hot summer, European Union (EU) analysts report lower than expected crop damage and an improved production outlook. Harvest data is limited to date but analyst Strategie Grains increased its EU production forecast this month to 142.4 MMT, a 7 percent increase from last year and the largest total since 2008/09, if realized. The extreme weather left some regional variations in quality, including lower protein wheat in some areas, but overall quality should meet average standards. Harvest is almost complete in France, the EU’s largest wheat producer, where analyst Agritel estimates a harvest of 37.0 MMT will be up 4 percent from last year and the largest in nine years. Production is also higher in Germany, where the Farm Cooperatives Association forecasts a 9 percent harvest increase to 24.4 MMT.
Black Sea
The Black Sea production rollercoaster will likely swing higher this year after harsh winter weather and severe drought in 2011/12 devastated last year’s wheat crops. Although the weather has not been ideal this year, particularly in Russia (the region’s largest wheat producer), the 2013/14 crop will be significantly larger than last year. Rain has slowed harvest and brought potential damage to yield and crop quality, prompting the Russian Institute for Agricultural Market Studies (IKAR) to downgrade its overall grain production forecast this week, which includes 51.9 MMT of wheat. According to USDA, Russia produced 37.7 MMT last year and 52.2 MMT on average the last five years. In Ukraine, where the majority of the crop is winter wheat, harvest concluded about three weeks ahead of normal. The agricultural ministry estimates winter wheat output increased 27 percent from last year to 20.0 MMT. USDA projects total Ukraine production to reach 21.5 MMT, a 36 percent increase and above the five-year average of 20.3 MMT. Timely moisture in Kazakhstan improved crop conditions and increased potential yields so USDA increased its estimated Kazak production this month by 2.5 MMT to 17.0 MMT. That compares to 9.84 MMT last year and would be well above the five-year average of 14.4 MMT.
Australia
The Australian Bureau of Agriculture and Resource Economics currently forecasts 2013/14 wheat production at 25.4 MMT, up 15 percent from last year and above the five-year average of 24.5 MMT. The majority of Australia’s exportable wheat crop grows in the west where timely July rains dramatically improved crop conditions following the driest June on record. Analysts said the recent rains could increase yield potential by 20 percent and help boost production in the western region by 25 percent over last year. Australian yields still depend on good weather during the approaching spring and early summer before harvest.
Argentina
Argentine wheat production has faced several significant challenges the last few years. Government policies limiting exports reduced economic opportunities and prompted farmers to grow crops with a more predictable profit. However, a seemingly farmer-friendly revision in the country’s agricultural regulations encouraged farmers to plant more wheat this year. The Rosario Grains Exchange projects a 20 percent increase in planted area to 9.5 million acres (3.8 million hectares). Planting concluded at the end of July with much improved soil moisture compared to the previous year. USDA projects a 20 percent increase in Argentina’s total wheat production to 12.0 MMT. Although an increase from 2012/13, it would still fall below the five-year average of 13.1 MMT. As in Australia, the crop still has a long way to go to meet these expectations.
Overall, at this early stage in the marketing year, it is unknown how overall supply factors will turn out and influence the wheat market. USW representatives around the world stand ready to discuss market issues and opportunities for U.S. wheat customers.