USDA cuts deeply into wheat numbers

By Sean Pratt

The United States Department of Agriculture surprised grain markets with its deep cut to Canadian wheat production but a leading grain market analyst thinks it didn’t go far enough.

USDA is forecasting 24 million tonnes of production, a 32 percent drop from last year and 26 percent below the five-year average.

Average yield is estimated at 38.8 bushels an acre, 24 percent below the five-year average.

The USDA noted that crop health for Canada’s spring wheat crop “declined substantially” in July.

Harvest started early in Southern Alberta due to the long stretch of heat and lack of precipitation. Here, a short-stature cereal crop is coming off west of Spring Coulee, Alta., on Aug. 12. | Barb Glen photo

“Provincial reports from the Prairies have noted the prevalence of early maturation, poor heading and stunted spring cereal crops.”

MarketsFarm analyst Bruce Burnett said the USDA cut deeper than most analysts were expecting in its August report. They thought there would be more of a phased-in approach.

But he still thinks they are being overly optimistic.

“Our expectation is the numbers will decline even further in subsequent reports,” he said.

MarketsFarm is forecasting Canada’s final production number will end up somewhere in the 19 to 23 million tonne range.

The USDA also slashed its Russia wheat estimate to 72.5 million tonnes, a 15 percent drop from last year.

The main reason for the decline was an ice-crusting event that occurred back in February and March.

The thawing and refreezing of water in the snowpack or top layer of the soil caused reduced plantings and yields for the winter wheat crop.

Russian growers planted more spring wheat to make up for the winter wheat losses. Spring wheat yields were revised up due to a recovery from hot and dry conditions in the Siberian District.

Winter wheat production is forecast at 50.5 million tonnes with spring wheat adding another 22 million tonnes.

Kazakhstan’s wheat production is forecast at 12.5 million tonnes, down 12 percent from last year due to below-average growing conditions in North Kazakhstan, Akmola and Kostanai.

“The scattered rainfall that occurred in July was generally too late for crop condition improvement, while heat and dryness returned to the region in early August,” said the USDA.

Burnett thinks both Russia’s and Kazakhstan’s numbers will continue to ratchet lower in subsequent reports because spring wheat growers in those two countries are facing similar conditions as their Canadian counterparts.

The USDA left European Union wheat production essentially unchanged at 153.45 million tonnes, slightly below last year’s crop of 154 million tonnes.

However, Strategie Grains recently cut its EU soft wheat forecast by 1.5 million tonnes to 131.5 million tonnes due to disappointing yields in France and Germany.

The firm said the market is facing “explosive situations for barley and wheat” due to the cuts in Canada’s production, according to a Reuters story.

Australia appears to be the one major exporter with a good crop on the way. Farmers there are expected to harvest 30 million tonnes, slightly below last year’s record of 33 million tonnes.

“Abundant precipitation since sowing has benefitted crop establishment,” said the USDA.

World wheat production has been revised down 15.5 million tonnes from last month but will still come in one million tonnes ahead of last year.

Once again, Burnett expects further downward revisions in that number in future reports as a small global crop continues to get smaller.

“Wheat has gone from this narrative of we’re going to have lots of it to actually, it’s going to be fairly tight here,” he said.

That realization is driving prices higher.

There were sharp increases in the most recent wheat tenders submitted to Egypt’s General Authority for Supply Commodities. Egypt ended up purchasing only one cargo.

“There is a bit of sticker shock going on amongst the importers,” said Burnett.

Spring wheat is going to be in particularly short supply this year due to the dismal crops in Canada and the U.S.

The USDA is forecasting 305 million bushels of U.S. hard red spring wheat production, a 42 percent drop.

Minneapolis wheat futures are at a US$1.70 per bu. premium over Kansas wheat versus the normal spread of 35 to 65 cents.

“Spreads are going to have to remain wide all the way through this calendar year and well into next calendar year,” said Burnett.

U.S. hard red spring wheat protein levels are sky-high, averaging about 15.4 percent with about half of the crop harvested. That is 1.2 percent higher than the five-year average.

He expects Canada’s crop will be one to two percentage points higher than average as well.

That might give international buyers the mistaken impression that the two countries will be long on protein. Production levels are so diminished that the opposite scenario is likely to be true.

“The bigger story is the supply generally and not the protein levels,” he said.

Burnett expects strong international demand for Canada’s spring wheat crop but there will also be robust domestic demand from North American millers and Canadian livestock producers due to a dearth of all feed grains.

“Wheat feeding is still going to be common this year despite the fact that prices are very, very high,” he said.

Read the original article at The Western Producer.