Weekly Commentary Archives | Grain Brokers Australia

Ukraine set for record crop if weather doesn’t crash the party…

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The winter harvesting campaign is in full swing across Ukraine, one of the most important producers and exporters of agricultural produce in Europe. Expectations are high for record production this season, but adverse weather conditions in the first half of July threaten to take the gloss off crop quality and final yields.

As of July 23, Ukrainian farmers had reaped 14.1 million metric tonnes (MMT) of winter crop grains off an area of 3.4 million hectares, putting the harvest progress at around 22 per cent of the planted area. This is up from 5.5MMT of harvested grain off 9 per cent of the planted area a week earlier.

Winter wheat made up the majority of the output with 8.86MMT in the bin off 2.68 million hectares. That is an average yield of 3.31 metric tonne per hectare (MT/ha) and constitutes 30 per cent of the forecast wheat area.

The winter barley harvest is the most advanced, with 1.9 million hectares already completed, 48 per cent of the total planted area. Output to last Friday was 5MMT, giving an average yield thus far of 2.63MT/ha. The pea harvest is 47 per cent completed, with 240,000 metric tonne reaped off 110,000 hectares for an average yield of 2.18MT/ha.

The bulk of harvest thus far has been confined to the south of the country, with the oblasts of Kherson, Mykolayiv and Odessa on the Black Sea 69 per cent, 60 per cent and 29 per cent completed, respectively. Further east, harvest in the war-torn provinces of Luhansk and Donetsk is 44 per cent and 39 per cent completed, respectively.

The Ministry of Agrarian Policy and Food predicts the harvest of grain and legume crops in the 2021/2022 marketing year will increase by 17 per cent compared to last season, to a record 75.8 million tonnes. The forecast was made up of 37.1MMT of corn, 28.5MMT of wheat, 8.3MMT of barley, 0.6MMT of peas and 0.5MMT of oats.

The International Grains Council released its latest global crop update earlier in the month, and they pegged total Ukrainian grains production slightly lower at 74.2MMT. It called the wheat crop 27.2MMT, corn output 37.3MMT, barley production 8.1MMT, and the canola harvest 2.5MMT. The USDA upped its Ukraine estimates earlier this month on the back of favourable June weather to 30MMT for wheat, 37.5MMT for corn and 9.2MMt for barley.

A rebound in winter crop production will mean higher exports in the 2021/22 marketing year, particularly over the next six months. The ministry of agriculture data released last week called total grain exports 56MMT, including 20.7MMT of wheat, 30.7MMT of corn and 4.1MMt of barley.

The IGC was a little more conservative, forecasting total exports at 53.1MMT, made up of 19MMT of wheat, 29.6MMT of corn, 4.3MMT of barley and 2.0MMT of canola. The USDA has wheat, corn and barley exports higher at 21MMT, 30.5MMT and 5.2MMT, respectively, on the back of their higher production expectations.

The latest official statistics put Ukraine wheat stocks at 1.74MMT as of July 1, 4 per cent higher than a year earlier, and corn stocks have increased 13 per cent to 2.29MMT. Farmers hold 1.18MMT, or almost 68 per cent of the wheat volume and 1.56MMT, or just over 68 per cent of corn stocks, to open the 2021/22 marketing year. On the other hand, barley stocks fell compared to the previous year to 1.07MMT due to sustained export activity.

Exports of Ukraine barley to China increased significantly in the 2020/21 marketing year, with the Asian nation becoming the largest importer of Ukrainian barley. This ended the long-standing dominance of Saudi Arabia as an export destination for Ukraine’s barley, with the Middle Eastern country shifting to purchases of Australian and Russian supplies in the 2020/21 season.

Ukraine exported 4.15MMT of barley in the twelve months to June 30 with 70.3 per cent, or 2.92MMT going to China. Saudi Arabia was the second-biggest importer at 320,000 metric tonne, just 7.7 per cent of total exports. The North African nation of Libya was just behind at 280,000 metric tonne, or 6.6 per cent of total barley exports.

Export activity in the first three weeks of the 2021/22 marketing year has been quite buoyant, with over 1.66MMT sailing from Ukraine ports. Corn has been the flag bearer at 824,000 metric tonne followed by wheat at 399,000 metric tonne and barley at 426,000 metric tonne. How wonderful it is to see such data released to the market so quickly and such a pity it takes five weeks from month end to see the same export statistics released here in Australia.

The premium for Ukraine milling wheat over feed wheat continues to widen and is approaching a three-year high amid weather-induced concerns over new-crop quality. The premium started to widen in mid-June after rain and above-average temperatures at the beginning of the month boosted the spread of plant diseases. Combined with strong winds, widescale lodging became apparent in some areas, which generally reduces protein content.

Torrential rain in the Odessa, Mykolayiv, Kherson, Zaporizhshya, Dnipropetrovsk and Donetsk regions in the first week of July led to localised flooding events, slowing harvest and exacerbating the lodging problem. The severe thunderstorm activity has continued over the past couple of weeks, with the rising water levels temporarily impacting some port facilities but are not drastically affecting export shipment operations.

According to media reports, around 3.2 million hectares of wheat and 1.4 million hectares of barley are affected by the wet start to harvest, 46% and 57% of the total area sown to these crops in Ukraine this year. Early new-crop wheat samples suggest that feed wheat’s share of this year’s wheat harvest will most likely be higher than the 30 per cent seen in the 2020 harvest.

This is already making it difficult for exporters to accumulate sufficient volumes of milling wheat to cover their export commitments, pushing export prices for 12.5 per cent and 11.5 per cent protein wheat higher. The spread between 11.5 per cent protein wheat and feed wheat in the spot export market has widened to around US$12 per metric tonne after touching US$14.50 per metric tonne on July 16, the highest since August 2018.

The widening of protein premiums is not restricted to Ukraine. The severe drought conditions in Canada are having a drastic impact on global production of high protein wheat. There are issues in the United States as well. This is already influencing grade spreads here in Australia. The flush season to date is not conducive to a high protein harvest so the recent trend could easily continue into the Aussie harvest if the seasonal conditions remain favourable.

Call your local Grain Brokers Australia representative on 1300 946 544 to discuss your grain marketing needs.

Canola conniptions ….

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The rapidly deteriorating fate of the Canadian canola crop has pushed global values sharply higher over the last fortnight. The trade and global consumers are slowly coming to grips with the implications of a falling production outlook for the world’s largest producer and exporter of the oilseed.

Canadian farmers may have increased the area planted to canola from 8.32 million hectares in 2020 to 9.0 million hectares in 2021, but the yield projection is falling rapidly. Subsoil moisture was low from the outset across much of the Prairies after below-average rainfall over the last twelve months. The crop was sown into a good seedbed in most instances, but a dry spring and extreme temperatures are swiftly taking their toll.

In last week’s World Agricultural Supply and Demand Estimates (WASDE) report, the USDA pegged Canadian canola production at 20.2MMT down just 03.MMT from their June estimate. That is much higher than local trade estimates, most of which are under 19MMT. Some are already as low as 16MMT. As Mike Jubinville from MarketsFarm so fittingly stated last week, “In our view, the USDA is out to lunch on Canada.”

That statement could also be applied to the USDA’s throw at the dartboard for Australian canola production this season. They landed on 3.7MMT, up 0.2MMT on the June estimate, but well behind domestic ideas, many of which now exceed 5MMT. The Australia Oilseed Federation’s May crop report pegged the planted area at 2.87 million hectares, up 25 per cent on the 2020 area, and off which Australian farmers reaped a record 4.28MMT last harvest.

Since then, the growing conditions in the two major producing states of Western Australia and New South Wales have been exceptional. If anything, there may be some areas suffering from excessive moisture. However, production in those two states will be enormous, and the gains are more than making up for any losses in Victoria and South Australia, both of which have been on the dry side since planting.

Canada’s contribution to global supply is significant. A reduced crop in 2021 will have substantial ramifications for international trade and oilseed prices, as the market demonstrated in the first half of July. In the last five years, global canola exports have averaged 16.1 million metric tonnes (MMT). Over that same period, Canadian exports have averaged 10.32MMT, or 64.1 per cent of international trade.

This compares to Australia, the world’s second-largest exporter, which accounted for 14.7 per cent of average exports for the five years since 2016 and the world’s number three exporter Ukraine, at 13.7 per cent for the corresponding period. The world’s three largest exporters collectively accounted for an average of 92.5 per cent of global canola trade since 2016.

Over the last five years, the three major exporters have produced at least 25MMT of canola combined or more than 36 per cent of global production. The record season was 2017/18, where output was 27.5MMT in a year where global production exceeded 75MMT for the first and only time. The USDA is forecasting 74.14MMT in the 2021/22 season, but that will have to be revised downward in the coming months to reflect the Canadian situation.

Strong exports out of Canada in the first half of 2021 were already weighing on canola stocks before the production issues became evident. According to Agriculture and Agri-Food Canada, closing stocks for the 2020/21 season are forecast to be as low as 0.7MMT, implying an extremely tight stock-to-use ratio of less than 4 per cent.

The USDA currently has Canadian carry out for the 2021/22 season at 1.05MMT. This is based on exports of 10.1MMT, down from 10.5mmt, and domestic consumption of 10.35MMT, also down slightly from 10.56MMT in 2020/21. However, we know the USDA production number could be overstated by as much as 4.2MMT today. With no meaningful reprieve in sight to arrest the yield decline, exports will have to decrease to balance the equation.

The tightening supply situation pushed the November Canadian canola futures contract on the Intercontinental Exchange (ICE) to a record close of CAD916.80* per metric tonne on July 13, after trading as high as CAD949.00/mt in intraday trade. This is up from CAD771.40/mt a week earlier, a recent low of CAD666.40/mt on June 17, and CAD492.20/mt a year earlier. And there is plenty of talk of the CAD1,000/mt barrier being breached this week.

Price action in Europe was not as dramatic, but Paris MATIF futures did catch some of the rally, with the November contract closing at a season-high of €552.25/mt** on July 13, up from €503.50/mt a week earlier, €471/mt on June 17, and €369.50/mt on the same day in 2020.

This season could garner a rarely seen sweet spot for the Australian canola grower. They are witnessing record farm gate prices, and the production outlook is growing by the day with an excellent soil moisture profile across a majority of the planted area and an extremely favourable spring climate outlook.

New crop domestic grower bids smashed through the AUD800/mt mark Friday week ago in Western Australia and closed last Friday at a mouth-watering AUD860/mt. It is fair to say that the west coast grower has probably sold more tonnes at this point in the season than ever before, but in terms of a proportion of a growing crop, it is probably at, or slightly behind, the long term average.

The east coast grower is also excited about the potential return on investment outcome that a high price and above-average production scenario could yield. Newcastle, Port Kembla, and Geelong grower bids all finished the week at around AUD806/mt, and the Port Adelaide number closed a tad higher at $810/mt. Grower selling has been steady, but that will undoubtedly accelerate as production certainty builds heading into the spring.

A key question for domestic canola values will revolve around the EU consumer reaction to lower Canadian production and exports. The trading bloc is the fourth biggest importer of Canadian canola behind China, Japan and Mexico. They will need to compete with those destinations to lock in supply. However, they are also likely to compete heavily to buy a bigger portion of the growing Australian export pie away from traditional Asian destinations.

* AUD/CAD exchange rate on July 19: 0.9334

** AUD/EUR exchange rate on July 19: 0.6265

Call your local Grain Brokers Australia representative on 1300 946 544 to discuss your grain marketing needs.

Aussie winter crop setting up for another big harvest….

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Late winter and early spring rainfall are likely to be above average for most of Australia, according to the latest climate outlook overview released by the Bureau of Meteorology (BOM) late last week. When coupled with a favourable temperature outlook, it only reinforces the prospect of above-average winter crop production for Australia in 2021.

One of the key drivers of weather across the Australian continent is the Indian Ocean Dipole (IOD). The index measures the difference in sea surface temperature between the western Indian Ocean and the eastern Indian Ocean, northeast of Australia.

The BOM expects a negative IOD event to develop in August or September, increasing the likelihood of above-average winter and spring rainfall for southern Australia. A negative IOD event is declared when there have been at least eight weeks below the IOD index threshold of −0.4°C.

The IOD value continued in negative territory last week, although it did sneak above that threshold for the first time in six weeks. That movement is expected to reverse as the eastern Indian Ocean temperatures continue to warm relative to the west. Most weather models have the index hovering around the -0.4°C benchmark for the August to November period before weakening slightly into year-end.

The El Niño–Southern Oscillation (ENSO) remains neutral with most oceanic and atmospheric indicators suggesting it will maintain a neutral bias for the remainder of the southern hemisphere winter and spring. Sea surface temperatures over the western Pacific Ocean and south of the equator remain warmer than average, pushing moist air over the Australian continent. Similarly, the Southern Oscillation Index (SOI) for the 30 days ending July 4 was +5.1. The 90 day SOI value was +2.8, both values falling within the ENSO neutral threshold.

All this is great news for winter crop production and should provide a perfect start for next summer crop campaign when planting commences in September across northern New South Wales (NSW) and southern Queensland.

Western Australia (WA) received more rain last week and over the weekend to add to the above-average rainfall registrations in the first half of the year. The crops were planted on time and into good moisture and have had wet feet ever since. The state is a relative oasis at the moment. With a six per cent increase in the planted area, record production is a distinct possibility if the favourable weather conditions continue into the spring.

The picture in South Australia (SA) is not as rosy, but the crop has been planted. Rainfall in the first three months of the year was average in most regions, remembering that it has a winter dominant rainfall weather pattern with a summer drought. However, the season break failed to arrive in April across much of the state, and the dry continued into the primary seeding month of May across most regions.

Encouraged by high grain prices, an extensive cropping program was on the cards. However, the soil moisture deficit going into seeding meant hard decisions had to be made about dry sowing versus waiting for sufficient precipitation. In general, around 25 per cent of the crop was planted dry, with the balance going in the ground in late May and June, once sowing rains arrived. The late break dealt a big blow to the state’s canola intentions, with wheat the big winner. The Murray Mallee part of SA is the big exception as it has remained dry, and plantings are down as a result.

Likewise, across the border in the Victorian Mallee and western Victoria where the season was extremely dry until planting rains arrived in June. The crop has now been sown, but they are a good three weeks behind normal due to the dry start and delayed plant. The Central and eastern parts of Victoria are in much better condition. Still, like South Australia, the entire state requires above-average rainfall over the next three months to produce average yields.

On the whole, NSW is every bit as good as last year, the one difference being the crop was planted on time in most regions. The biggest issue for this year’s planting program has been too much rain, particularly in the north and northwest of the state, where the seeding task has been quite fragmented.

While there may be some localised cases of excessive soil moisture, in general, crop conditions across the state are magnificent, and a repeat of the record yields seen in 2020 are a distinct possibility. The timely start to the season, coupled with high prices at sowing time, also means the canola area has been maximised in NSW this year.

Winter crop production in southern Queensland has suffered under a series of dry seasons since the bumper 2016 harvest. However, this year may provide some redemption. Good summer rains set the scene for a significant winter plant, and most districts have had ample top up rains over the winter. The large crop is well advanced and is set up to produce a crop at least twice as big as last year, and with a good spring, it could approach three times the size.

For most farmers in Central Queensland, rainfall and the soil moisture profile has not been nearly as favourable as the southern parts of the state. That said, the crop is in the ground with a large bias toward chickpeas which reportedly make up around 60 per cent of the planted area. Wheat makes up almost all the balance.

I pegged last year’s Australian wheat crop at a record 36.2 million metric tonne (MMT). The pace of exports season-to-date, the export stem for the final three months of the 2020/21 crop year, domestic demand and some recent projections on east coast carry out certainly support a number much higher than the final ABARES figure of 33.3MMT. With NSW and WA in such good shape, a wheat crop with a three handle is on the cards again in 2021.

Strong prices leading into the canola planting window and a good soil moisture profile in most key growing regions have bolstered the estimated planted area by as much as 30 per cent this year to almost 3 million hectares. Applying the average national yield for the last decade would see production eclipse last year’s record 4.28MMT harvest. If there were to be a repeat of 2020 yields, production would approach a staggering 5.5MMT.

While the crops in Victoria and SA may be lagging long term averages for this time in the growing season, numerous reports from farmers in WA, NSW, and southern Queensland declare they have never seen their crops looking so good. Add an extremely favourable three-month forecast, and 2021/22 winter crop production in Australia is on track to break a few more records this season.

Call your local Grain Brokers Australia representative on 1300 946 544 to discuss your grain marketing needs.

Canadian grain crops getting roasted under heat dome….

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Canadian temperature records tumbled last week, wildfires raged, and large parts of the Prairies were scorched as a weather phenomenon known as a heat dome parked itself over an area stretching from California to Canada’s northern territories.

A heat dome occurs when the atmosphere traps hot ocean air like a lid or a cap. According to the National Oceanic and Atmospheric Administration (NOAA), the phenomenon starts when there is a strong change (or gradient) in the ocean temperatures.

In the convection process, the gradient causes more warm air, heated by the ocean surface, to rise over the ocean surface. As the prevailing winds move the hot air east, the northern shifts of the jet stream trap the air and move it toward the land, where it sinks and results in heat waves.

The heat dome is forecast to weaken as it moves east this week, but it is expected to maintain sufficient intensity to set temperature records across Alberta, Saskatchewan and Manitoba. This is a potential disaster for the wheat, barley, canola and pulse crops that are already suffering from extreme moisture stress this season.

The British Columbia town of Lytton broke Canada’s all-time temperature record for three consecutive days last week. The record now stands at 49.6°C, smashing the previous mark of 45.0°C, set in Saskatchewan way back in 1937. The extremely sad epitaph to that story is 90 per cent of the mountain hamlet was then destroyed by wildfires that swept through the district on Wednesday evening.

The wildfires have also disrupted rail movements of grain from the Prairies to the west coast export hub of Vancouver. The fires are reported to have destroyed a railway bridge on the Canadian National line near Lytton and stretches of the Canadian Pacific line in the same area has been rendered impassable. Re-routing via a northern corridor is possible, but export accumulations will undoubtedly be hindered in the coming weeks, and vessel delays will ensue.

All this came in the same week that Statistics Canada updated the country’s planted area estimates following the June 2021 Field Crop Survey. The seeding program is now complete and Canadian farmers reportedly planted more canola, barley, soybeans and lentils, but decreased the area sown to wheat, dry peas. The total area planted to principal field crops increased by around 0.6 per cent to 29.535Mha.

The area planted to wheat was pegged at 9.47 million hectares (Mha), down 6.5 per cent on last year. The spring wheat area saw the biggest decline, down 8.1 per cent to 6.68Mha. The durum wheat area fell 2.8 per cent to 2.23Mha while the winter wheat area fell 1.4 per cent to around 536,000 hectares.

High global demand for oilseeds and record-high prices in the first half of 2021 was noted as the likely catalyst for increased canola plantings this year. The survey results revealed farmers nationally planted 9.11Mha, up 8.2 per cent year-on-year and only just below the total wheat area. The big mover was Alberta, where the area was up 14.5 per cent to 2.71Mha compared to 2020.

The buoyant oilseed complex has also encouraged an increase in the soybean area in Canada, with 2021 plantings 4.9 per cent higher than in 2020 at 2.14Mha. Ontario is the biggest soybean producing province, and their plantings are reportedly up by 3.0 per cent to 1.17Mha.

Ontario is also the biggest corn producing province, with around 60 per cent of national production in most years. Countrywide, the projected corn area was down 2.5 per cent to 1.42Mha, with the Ontario contribution down 2 per cent to 850,000 hectares.

Canadian farmers seeded 3.36Mha to barley in their 2021 cropping program, up 9.7 per cent on a year earlier. Saskatchewan was the swing province, increasing the area by a mammoth 18.7 per cent to 1.50Mha. Saskatchewan took the gong in the oat stakes as well, claiming 47 per cent of the planted area. The provinces farmers decreased plantings by 11.1 per cent to 647,000 hectares, with the national crop down 10.8 per cent to 1.38Mha.

Pulses round out the June planted estimates from Statistics Canada. According to the farmer survey, the lentil area has increased by 1.7 per cent over the last 12 months to 1.74Mha. However, the dry pea area is down 10.2 per cent to 1.54Mha.

While the crop may be in the ground, lack of soil moisture and the current heatwave has sent yield estimates on a downward spiral in many districts. And with no significant rains in the forecast, Canadian crop conditions are expected to deteriorate significantly in the coming weeks.

This is a critical period in the Canadian crop production cycle. Many of the winter and spring crops are entering the critical reproductive phase. Severe heat at this time, especially under moisture stress conditions, can be extremely damaging to final yield. Some regional production anecdotes are pretty dire, with the possibility of the worst crop in history potentially on the cards.

The unfortunate plight of the Canadian canola and high protein spring wheat crops has pushed domestic prices to levels not seen for many years. December contracts on the Minneapolis Grain Exchange was changing hands for USD303.32 per metric tonne on Friday, down slightly from its eight-year high on Wednesday but more than 31 per cent up on the April 1 close of USD231.12 per metric tonne.

Likewise, Canola futures soared last week, continuing a sharp rally that commenced on June 18. The November contract closed at CAD830.90 per metric tonne, up CAD164.50 per metric tonne, or almost 25 per cent in two weeks. The contract has rallied more than 40 per cent over the past two months.

This sort of price activity is great news for Australian farmers, particularly with almost the entire domestic cropping area facing an average to above-average production outlook at this point in the season. Key Asian destinations such as China, Japan, Indonesia and Bangladesh are likely to reduce their reliance on Canadian exports in favour of more competitively priced grains from down under.

Call your local Grain Brokers Australia representative on 1300 946 544 to discuss your grain marketing needs.

Favourable weather sees EU winter and spring crop production rebound…

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Favourable spring and early summer temperatures combined with above-average soil moisture in most regions have boosted yield estimates for the European Union’s winter and spring crops, with the outlook now sitting well above the five-year average.

Once the cooler temperatures of May gave way to warmer days throughout June, crop development accelerated, and extended grain fill periods are being experienced in many districts. There are parts of Italy and Portugal that have been on the dry side, but below-average temperatures have limited negative impacts.

On the flip side, parts of the Baltic and neighbouring regions have been relatively wet, which has limited yield potential. Excessive cloud cover in northern Germany and southern Denmark has limited radiation during the critical flowering period, slightly decreasing yield potential as a result.

According to the latest crop monitoring bulletin from JRC MARS, this year’s wheat harvest will average 5.79 metric tonne per hectare (MT/ha). This is 1.6 per cent higher than the May projection of 5.70MT/ha and sits 5.8 per cent above the five-year average of 5.47MT/ha.

The big winner has been the soft wheat crop where the average yield is forecast at 6.01MT/ha, 1.7 per cent higher than the May number and 5.6 per cent higher than the five-year average of 5.69T/ha. The yield increase in the durum wheat crop is not as impressive, with MARS calling it 3.57MT/ha this year, just 2.2 per cent above the five-year average of 3.49MT/ha.

On the barley front, MARS is predicting an average yield of 4.97MT/ha, 4.2 per cent higher than the five-year average of 4.77MT/ha. Looking at the breakdown, it is definitely the spring planted crops that are letting the team down. The winter and spring barley crops are predicted to yield 5.9MT/ha and 4.28MT/ha, respectively, 4.9 per cent and 3.9 per cent above the five-year average.

Like the Tour de France, which commenced in the northwest of the country on the weekend, so too the French winter crop harvest has begun. On Friday of last week, FranceAgriMer advised that one per cent of the winter barley crop was in the bin as of June 21, down from two per cent on the same week in 2020.

The French farm office also released their latest wheat and barley crop ratings with a slight deterioration across the board in the week to June 21. Nevertheless, the crop is still sitting above average for this time in the season, and there is expected to be a sharp rebound in production compared to the poor harvest in 2020.

The soft wheat crop rating came in at 79 per cent good-to-excellent, down from 81 per cent a week earlier. The durum wheat rating fell three percentage points week-on-week to 67 per cent good-to-excellent. The winter barley crop was rated 75 per cent good-to-excellent, down one per cent on the June 14 rating. On the whole, the spring barley crop is in better condition at 84 per cent good-to-excellent, but it did lose two percentage points across the week.

In Germany, the wheat, barley and rapeseed crops all suffered from below-average growth in the cool early spring weather, but a much warmer June and good soil moisture has enabled crops in most regions to catch up. According to Germany’s Association of Farm Co-operatives, the crops were about two to three weeks behind normal development in May but are now only about one week to ten days behind.

The European Commission updated production estimates for its 27 member countries last Thursday. The output of what they refer to as usable soft wheat was trimmed by 0.4 million metric tonne (MMT) to 125.8MMT compared to the agency’s May forecast. If realised, that would put the 2021 crop 7.3 per cent higher than the drought-affected total of 117.2MMT last year.

The Commission pegged soft wheat exports from the EU-27 at 30 million tonnes for the 2021-22 marketing year, which commences in the back end of this week on July 1. This represents an 11 per cent increase on the 27MMT of wheat exports projected in the current marketing year.

However, a couple of key internal EU wheat demand categories were also revised higher in this month’s report. The quantity of wheat expected to be used in stockfeed rations and biofuel both increased by 300,000 metric tonne to 41.3MMT and 3.4MMT, respectively.

Meanwhile, the Commission expects wheat imports into the EU-27 to total 2.7MMT in the coming marketing year. Ending stocks are expected to total 10.1MMT on June 30, 2022, down from the May estimate of 10.8MMT but 22.7 per cent higher than the 8.8MMT likely to be in reserve when the 2020-21 marketing year concludes this week.

According to the Commission, usable barley production across the EU member states is forecast at 53.5MMT, down 1 MMT from the May estimate and 6.0 per cent lower than the final 2020/21 production number. The Commission revised last year’s barley harvest 2.1MMT higher to 56.9MMT on the back of robust exports but ample supply. This pushed ending stocks for the 2021/22 marketing year to 8.4MMT compared to 6.8MMT in last month’s report.

On the rapeseed front, the Commission left its May production estimate unchanged at 16.7MMT in last week’s update. However, it did raise member country imports by 400,000 metric tonne to 62MMT in 2021/22, on par with imports in the current marketing year.

Higher production will be the order of the day across the 27 European Union member states this harvest. This should see export volumes, particularly from France, into traditional northern African homes return to pre-drought levels. No doubt competition from the Black Sea region will be intense as the region forges new export partnerships, but there is always China as the French so readily entertained in the current marketing year.

Call your local Grain Brokers Australia representative on 1300 946 544 to discuss your grain marketing needs.

Russian wheat crop in for a scare this week…

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The Russian word “sukhovey” caught the attention of global grain markets last week, with the possibility of it striking Black Sea crops in the coming weeks popping up in numerous market and weather wires. The word itself means dry or drought, but its usage these days has a far more specific meaning, implying a certain set of associated phenomena.

Sukhovey refers to a wind with high temperatures and low relative humidity that has its origins in the steppes, semi-desert and desert regions of Kazakhstan. It emanates from the periphery of anticyclones, predominantly over the summer months and generally blows in a westerly direction.

The speed of the winds is usually quite moderate at less than 20 kilometres per hour (kph). However, in extreme cases, the wind speed can be more than 50kph and, on rare occasions, as high as 80kph. When associated with air temperatures above 25 degrees Celsius and relative humidity less than 30 per cent, this unique weather phenomenon can cause rapid evaporation of soil moisture, and crops in its path can wilt quite quickly.

Several weather models are forecasting a sukhovey to strike western Kazakhstan, large parts of southern Russia and north into the Volga River Basin this week. While it will add to the spring crop woes, most of the winter cropping regions have plenty of moisture and could cope with some drying weather. Nevertheless, some models suggest it may persist into the first week of July, which could definitely stress crops and reduce yields in some districts.

The area sown to spring wheat reached 12.8 million hectares this year, according to leading Russian agriculture consultancy SovEcon. This was due to an increase in the total cropping area as more land is bought back into the production cycle and a higher than average replant of winter cropping areas due to winter kill in the Central regions. The spring wheat issues are likely to be the limiting factor for Russian production this harvest.

Despite the spring wheat issues, Russian production forecasts have been on the rise this month. SovEcon raised its Russian wheat production forecast on June 11 by 1.5 million metric tonne (MMT) to 82.4MMT. Two days earlier, another local agriculture consultancy, IKAR, raised its wheat crop forecast by 2MMT to 82MMT.

Above-average rainfall in May and early June has significantly improved the winter crop outlook, particularly in the south, which is Russia’s largest wheat producing and exporting region. For the moment, it seems that bumper crop conditions in the south are more than compensating for any production losses in the spring wheat regions. Consequently, Russian wheat export estimates remain steady at around 37.5MMT in 2021/22.

Farmers across most of Ukraine have had an ideal growing season, and production forecasts are quite upbeat. Nikolay Gorbachov, the president of the Ukrainian Grain Association, is forecasting a bumper crop in 2021-22 with a record wheat crop of more than 30MMT on the cards if conditions remain favourable. The association is currently forecasting wheat exports of 21MMT in the 2021/22 marketing year.

At the other end of the forecast spectrum is Ukraine analyst APK-Inform who trimmed its wheat harvest forecast slightly last week to 27.3MMT but kept its export outlook unchanged at 19.8MMT.

Ukraine’s wheat crop is typically as high as 80 per cent milling quality and is highly sought in the export market. However, the proportion may be lower this year as there is a distinct risk that farmers may not achieve the 12.5 or 13 per cent protein level due to the higher than average spring rainfall and lack of sunshine to finish the crop quickly.

Logistical issues have historically hampered Ukraine’s ability to quickly move grain into the export pathway, but according to Gorbachov, that issue has been addressed. Ukraine has invested heavily in rail logistics, with 28,000 grain wagons in their fleet compared to 10,000 just three years ago.

It is estimated that 65 per cent of grain destined for export can move to the port by rail, reducing the road task to 25 per cent, with the balance by barge. There are also moves afoot to increase the proportion moving to port on the country’s river system. New legislation, due to come into effect at the beginning of 2022, will make it a much more economical mode of grain transport. This will further reduce the reliance on road freight.

In Kazakhstan, hot weather and insufficient soil moisture reserves are stressing the developing spring wheat crop, putting downward pressure on production estimates. Some forecasters still have the country’s wheat crop at more than 14MMT, but most are now under that mark, with yields expected to be less than last season as the adverse weather conditions take their toll. Analysts have wheat exports pencilled in for around 7.5MMT at this stage.

With harvest almost upon us, we are getting to the pointy end of the production cycle in the Black Sea region. If current production estimates are maintained through the harvest period, exports from Russia, Ukraine and Kazakhstan combined are expected to rise by around 5 per cent year-on-year to 66MMT. This is primarily due to the sizeable rebound in Ukraine production.

The tax regime will continue to cloud the grain export landscape out of Russia this season. But with a large exportable surplus in Ukraine providing liquid competition into similar destinations, Russian exporters will be eager to buy their share of the global demand pie. With the potential for another big crop down under, the key unknown is how aggressive they will be into Australia’s traditional Asian markets in the 2020/21 marketing year.

Call your local Grain Brokers Australia representative on 1300 946 544 to discuss your grain marketing needs.

Corn in the driver’s seat, but route is yet to be determined…

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The USDA provided a fresh take on the global grain outlook with the release of the June World Agricultural Supply and Demand Estimates (WASDE) report last week. Surprisingly, the news was relatively subdued and was quickly overshadowed by ongoing global weather issues, particularly in the United States.

Corn has a firm grip on the global grain market steering wheel at the moment, and most traders and analysts were expecting quite bullish news from the USDA. While that was the case on the whole, there were still some confusing numbers, particularly the cautious approach taken to the Brazilian production issues.

This season’s corn production woes in Brazil are well documented, with some local analysts posting production numbers sub 90 million metric tonne (MMT). Nevertheless, the USDA decided to kick the can a little further down the road it seems, reducing current season production by just 3.5MMT month-on-month to 98.5MMT.

In the US, corn exports for the 2020/21 season were raised 1.9MMT to a record 72.39MMT on the back of the huge spike in demand from China. However, the China import number was unchanged at 26MMT, which appears conservative based on the unexecuted export sales still on the books and the low rate of cancellations.

The US ethanol grind was also raised by 1.9MMT with recent corn crushing, ethanol production and ethanol stocks data suggesting demand is approaching levels seen prior to the coronavirus pandemic. The net effect of these changes was a lower than expected US carry out number of 28.1MMT, down 3.8MMT compared to the May report.

In the end, global corn production for the 2020/21 season was trimmed by 3.4MMT compared to last month to 1,125MMT, reflecting the Brazil crop downgrade. Worldwide exports were pegged at 187MMT, fractionally higher than in the May report and global ending stocks came in around expectations, 2.9MMT lower than May at 280.6MMT.

Global corn production in 2021/22 is forecast to increase by 5.7 per cent year-on-year to a tad under 1,190MMT. Global consumption is projected to be 2.7 per cent above current season levels at just over 1,181MMT, resulting in an increase in global ending stocks of almost 9MMT to 289.4MMT. Exports are expected to increase by nearly 10.5MMT to a record 197.5MMT.

Interesting amongst the new crop numbers was the 10MMT decrease in US exports to 62MMT against a current season Brazilian crop that is getting smaller by the day and is overquoted by as much as 8MMT in the WASDE report. Surely, the US will have to fill the resultant supply gap when new crop production comes online. Eventually, the numbers will tell the story, but only once the USDA decides to pick up the can and admit the production hole in Brazil.

On the surface, it may seem surprising that new crop US production remained unchanged when 30 per cent of the corn belt is suffering from varying degrees of drought. However, there will be a USDA stocks and acreage update at the end of June that is widely expected to reveal a seeded area much higher than what was reported in March.

Informa released updated survey results last week, suggesting that the area planted to corn could be as high as 39.2 million hectares (Mha). That is 2.3Mha more than the USDA’s March planting intentions number and will help compensate for production currently being lost due to moisture deficit conditions in several key growing regions.

The USDA loosened the global wheat balance sheet a little in last week’s report, with world production forecast to rise 2.4 per cent, or 18.6MMT year-on-year to a record 794.4MMT in the 2021/22 crop year. The highlights are a rebound in European Union production compared to the 2020 harvest and another record crop In Russia.

Month-on-month, the USDA revised the EU wheat crop 3.5MT higher to 137.5MMT, the Ukraine crop 0.5MMT higher to 29.5MMT, the US crop 0.7MMT higher to 51.7MMT, and the Russian crop 1MMT higher to 86MMT. The higher US production and no decrease for Canadian output was a surprise considering the extreme drought conditions in the Northern Plains and north onto the Canadian Prairies.

Similarly, the spring wheat regions of Russia have been suffering under severe moisture stress. However, the winter wheat regions, which account for almost 70 per cent of Russian wheat production, have enjoyed ideal growing conditions this year apart for some winterkill in Central Russia. Leading Black Sea consultancy SovEcon raised their Russian crop ideas by 1.5MMT to 82.4MMT last week, citing excellent winter wheat growing conditions this season.

On the demand side of the wheat equation, the USDA raised global consumption for the 2021/22 marketing year by 2.4MMT compared to May to 791.1MMT. This represents an annual increase of 1.2 per cent, or 9.6MMT. Global trade is also on the rise, with exports revised 0.8MMT higher than the May forecast and 4.9MMT higher than the 2020/21 number, to a record 203.2MMT.

The soybean story held very few surprises. Global production in the current season was increased by 1.1MMT to 364.1MMT. Brazil was the responsible party with their crop 1MMT higher than the May number at a record 137MMT. Brazil carry out was the beneficiary, up 1MMT to 23MMT, although China has been snapping up as much of the Brazilian crop as they can get their hands on, making an increase in ending stocks less likely with every new sale.

In the new crop slot, global production, consumption and trade numbers were unchanged compared to the May report. However, the USDA is forecasting an annual increase in global production of almost 6 per cent, or 21.5MMTcompared to the 2020/21 season. That would put world output at a record 385.5MMT, underpinned by 7MMT increases in both Brazil and the US and a 5MMT increase in Argentina.

With the June WASDE behind us, all eyes will be firmly focused on the northern hemisphere weather in the lead up to the June 30 Grain Stocks and Acreage Reports. These reports mark a crucial juncture in this year’s proceedings, particularly for corn. The market has already factored in a much higher corn area. With dryness building across the US corn belt, the magnitude of the increase is becoming even more crucial to the direction of global grain markets.

Call your local Grain Brokers Australia representative on 1300 946 544 to discuss your grain marketing needs.

Spring wheat issues mount as drought spreads …

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The Northern Plains of the United States is copping a hiding from the weather gods at the moment with above-average temperatures and below-average precipitation forecast for the next two weeks, adding to the drought woes currently being experienced across much of the north and western reaches of the country.

Scattered showers are expected across the Northern Plains this week, but the falls are unlikely to be enough to avoid net drying in most areas. The ridge of high pressure that brought hot temperatures to the northern most states last week and over the weekend is expected to return as the rains recede.

Rainfall deficits are accruing with 70 per cent of the spring wheat area in some degree of drought. Almost half of the belt received less than 50 per cent of their average May rainfall, and it will be in big trouble if substantial and widespread precipitation fails to arrive in June. There is a chance of some rain if temperatures cool off, but there is no soaker in the forecast, which only leads to greater and greater deficits as the month rolls on.

North Dakota is the biggest spring wheat growing state in the US, producing almost half of the country’s output in 2020. But the crop was getting toasted last Friday with temperatures exceeding 37°C in many areas, winds as high as 50 kilometres/hour and humidity as low as 17 per cent. While not as extreme, the hot, windy conditions persisted for much of the weekend, adding further stress to an already struggling crop.

According to last week’s US Drought Monitor Report, almost 18 per cent of North Dakota is experiencing exceptional drought conditions, the worst categorisation in the US drought model, with another 59 per cent in the second-worst category, extreme drought. According to the drought monitor service, almost 99 per cent of the state is currently suffering from some degree of drought, and it is the state’s most intense and widespread drought this century.

The drought isn’t quite as bad in South Dakota, but it is still a major concern for farmers, particularly along the border with North Dakota. The area suffering extreme drought conditions has decreased, but 94 per cent of the state falls into the abnormally dry category, or worse. In Minnesota, about 13 per cent of the state reported moderate drought, with 73 per cent of the state reported abnormally dry conditions, or worse.

The impact of the drought across the Northern Plains is evident in the USDA’s weekly Crop Progress Report. Spring wheat conditions were added for the first time this season on May 25, with the overall good-to-excellent category debuting at 45 per cent. That slipped two points to 43 per cent last week, the lowest early June rating since 1988. This is also drastically lower than the 80 per cent good-to-excellent rating for the same week in 2020.

In North Dakota, only 31 per cent of the current crop made the good-to-excellent rating category, potentially putting a big dent in US spring wheat production if the drought persists. The story in South Dakota is slightly better at 45 per cent. However, ratings in both states are expected to take a hit when the numbers are updated this week. At the same time last year, the good-to-excellent ratings in North and South Dakota were 83 and 74 per cent, respectively.

There continue to be stories across the Dakotas of spring wheat that failed to emerge due to parched soils and farmers ploughing in crops and replanting with other spring grains. In North Dakota, 97 per cent of the spring wheat area had been planted by May 30. Nonetheless, some farmers are saying that if they don’t get meaningful rains by mid-month, there will be some prevent plant declarations. Emergence was running at 76 per cent at the end of May.

Crop conditions in the eastern reaches of the Northern Plains are much better than the Dakotas, with the USDA calling Minnesota’s spring wheat areas 84 per cent good-to-excellent. That was slightly higher than the 81 per cent rating on June 1 last year. The southeast parts of the state received good rains in May, but moisture deficits persist.

The dryness in the northern latitudes of the US has been building for months, and the long-range forecasters say the weather pattern appears to be setting up for a longer-term blocking ridge across the Northern Plains. However, it is not only the spring wheat regions of the US that are being troubled by this system. Just across the border, the extremely dry climatic conditions are exacerbating an already dire situation for the Canadian spring wheat farmer.

The drought conditions ridge up into Manitoba, Saskatchewan and parts of Alberta. Millions of acres of the Canadian Prairies have inadequate topsoil and subsoil moisture levels at the moment. The soil moisture deficits have been building following two years of below-average precipitation. In some districts the drought is unprecedented, having just recorded the driest nine-month period since records began in 1895.

The Russian wheat areas at similar latitudes are also in trouble. About 50 per cent of their spring wheat belt is suffering from an intense drought that has hampered germination and crop establishment. The month of May for Russia’s spring wheat areas is reported to have been the second driest in the last 40 years.

The potential impact on global wheat production is mounting. If this week’s weather forecasts fail to show significant relief in the 14-day runs, then the price action on Minneapolis will get very interesting. The December contract closed up US$10.50/mt ahead of the weekend and has rallied US$43, or almost 17 per cent, since the most recent low on May 26. If this continues, the Chicago and Kansas wheat contracts will have to get more keenly involved in the chase.

High global grain prices and rampant demand from the Middle Kingdom have put a spring in the step of farmers across the world. While not desirable, production issues in parts of the US, Canada and Russia will potentially generate export opportunities for Australia. We can only hope that the current winter crop production potential down under is maintained through the spring and manifests itself in another big crop for the Aussie farmer.

Call your local Grain Brokers Australia representative on 1300 946 544 to discuss your grain marketing needs.

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