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World wheat production on the rise again…

Posted by | Weekly Commentary | No Comments

The International Grains Council (IGC) released their latest grain market report late last week, and global wheat production is forecast to set another record high of 769 million metric tonne in the 2020/21 marketing year. This compares to 763 million metric tonne expected to be produced in the current season, itself a record, being 1 million metric tonne higher than the previous mark set in 2017/18.

Australia alone could more than account for the projected increase in 2020/21 global production as a return to a more average season would see at least 10 million metric tonne added to domestic output. A repeat of the 2016/17 season could see almost 20 million metric tonne added to this season’s disappointing production outcome, especially considering the potential area earmarked for wheat following the back-to-back east coast droughts.

Since surpassing the 700 million metric tonne level for the first time in 2013/14, global wheat production has been steadily rising each year. The only hiccup was the 2018/19 season where production dropped to 733 million metric tonne, primarily due to production falls in Australia, Russia, Ukraine and the European Union.

IGC estimates that the harvested area for wheat in the 2020/21 global campaign will increase 2 per cent year-on-year to 221 million hectares. This is well below the harvested area record of 239 million hectares set way back in the 1980/81 season.

Global grain production has come a long way in the last forty years, thanks to the broad adoption of vastly improved agronomic practices. Back in the 1980/81 season, the world produced 450 million metric tonne of wheat. That represents an average global yield of 1.88 metric tonne per hectare compared to IGC forecasts of 3.52 and 3.48 metric tonne per hectare for the 2019/20 and 2020/21 seasons respectively.

The turnaround in this season’s world wheat production compared to the 2018/19 can primarily be attributed to improved production in the major exporting countries, excluding Australia. However, Indian production has increased to such an extent in recent years that it is now a potential net exporter, albeit in small quantities, in coming seasons.

India is the second-largest wheat producer in the world behind China. Early last week the Indian Agriculture Ministry released its grain production forecasts for the 2019-2020 season, in which wheat output is projected to be a record 106.2 million metric tonne. This compares to the 103.6 million metric tonne produced in 2018-19, the first time the 100 million metric tonne production barrier had been breached.

The expected bumper Indian crop can be attributed to two key factors. Firstly, the area seeded to wheat increased to record 33.6 million hectares, up 3.7 million hectares compared to last season and almost 2 million metric tonne higher than the previous record set in 2016/17.

Secondly, the excellent monsoon season delivered 10 per cent more than the Long Period Average of 880 millimetres of rainfall. As a result, yields are expected to average close to 3.2 metric tonne per hectare, well above the national long term mean. With the Indian harvest commencing this month, progress will no doubt be monitored with increased interest by the global trade.

On the demand side of the equation, world carry-out stocks are expected to increase in the 2019/20 marketing year. The IGC has forecast global wheat consumption at 753 million metric tonne, up 2 per cent on 2018/19, resulting in a 10 million metric tonne increase in stocks at the conclusion of the current marketing season on June 30.

However, the devil is in the detail as this increase will more than likely reside in traditional non-exporting countries such as India and China. Ending stocks in the major exporting countries are expected to decrease to around 67 million metric tonne, a year-on-year fall of more than 4 per cent.

Meanwhile, Saudi Arabian milling wheat demand continues unabated with the state grain buyer, SAGO, booking 715,000 metric tonne for second-quarter. It booked 360,000 metric tonne for Jeddah delivery at an average price of US$243.25, an increase of US$3.35 on the previous tender back in October last year.

The average price for the 300,000 metric tonne booked for Dammam delivery was US$253.00, up US$5.28 on the October price. SAGO also booked one panamax for delivery to the southern Red Sea port of Jazan at US$245.39. While the prices were higher than the last tender, they are much lower than if the tender had been issued in January.

However, the more interesting tender result released last week was the Philippines who purchased 275,000 metric tonne of optional origin feed wheat for May to July delivery. The May price is reported to be around US$238 cost and freight (C&F), the June price around US$228 C&F and the July (new crop) price around US$218 C&F.

The majority, if not all, of the wheat is expected to be executed from the Black Sea. The only position where Western Australian values get close is May. But even then, last week’s grower bids suggest domestic wheat would still be at least US$5 out of the money unless the exporter owns elevation assets and is willing to discount the pipeline.

Additionally, the spread between the May and July prices is a reflection of the old crop/new crop inverse that currently exists in the Black Sea export market. While old crop Black Sea prices have been falling in recent weeks, so too have new crop prices at almost the same pace meaning the inverse has only narrowed slightly.

Global grain markets looking for direction after benign WASDE report…

Posted by | Grain Brokers Australia News, USDA WASDE Report, Weekly Commentary | No Comments

The United States Department of Agriculture (USDA) released their November World Agricultural Supply and Demand Estimates (WASDE) to the market last Friday (Saturday morning down under) and there was nothing to get the trade, or futures markets, too excited.

Chicago Board of Trade (CBOT) December wheat futures closed the week at 510¼ cents per bushel (c/bu), down 2¼ c/bu on the day and down 5¾ c/bu for the week. Wheat futures have been trending downward since a 3-month high of 532¼ c/bu was set on October 18. That equates to a fall of almost AU$12 over the last three weeks.

The December corn futures contract closed last Friday’s trade at 377¼ c/bu, up 2 c/bu on the day but down 12 c/bu for the week. The soybean contract for November closed at 919½ c/bu, down 5½ c/bu on the day and down 4¾ c/bu for the week. Like wheat, both corn and soybean futures have been trending lower in recent weeks and have lost the equivalent of just under AU$12 and just over AU$11 respectively since the highs of mid-October.

The WASDE wheat production numbers were basically a juggling act, the result being a small global increase of around 0.3 million metric tonne (MMT). Australian production was decreased by 0.8MMT to 17.2MMt, similar to last year’s final number. However, this is still around 1.5MMT above many domestic trade estimates, and a further reduction is expected in the next report, due for release on December 10.

Argentine wheat production was decreased by 0.5MMT to 20MMT. Like Australia, this is around 1.5MMT above the most recent estimates emanating from the South American republic. Last season’s production was 19.5MMT. Reaping has commenced in many parts of the country, and the Buenos Aires Grain Exchange called the wheat harvest 7 per cent done compared to 11 per cent at the same time last year.

The United States (US) was the other major wheat producer which saw production fall compared to last month. The USDA pegged 2019/20 production at 52.3MMT, a decrease of 1.1MMT, but still, 1MMT higher than last season.

Planting of the next US winter wheat crop is well underway with 94 per cent expected to be planted by early this week. This compares to 89 per cent last week, 85 per cent last year and 92 per cent on average. Crop ratings are expected to be unchanged week-on-week at 57 per cent good to excellent, versus 51 per cent last year.

On the positive side of the equation, Ukraine, Russia and the European Union (EU) all saw increases to their final wheat numbers for the 2019/20 season compared to the October report. Ukraine production was increased by 0.3MMT to 29MMT. This represents a significant year-on-year increase of 4MMT, or 16 per cent.

The USDA increased Russian production by 1.5MMT to 74MMT. Here again, the USDA appears to be conservative with their revised estimate as local Russian forecasts are around 1-2MMT higher. That said, it is still around 2.3MMT higher than 2018/19 production.

The most significant increase to global wheat numbers in Friday’s WASDE report came in the EU. Production was posted at 153MMT, an increase of 1MMT compared to October and an increase of 16MMT compared to last season. However, the USDA number is 3MMT lower than the most recent European Commission wheat forecast of 156MMT.

In France, the European Union’s biggest wheat producer, planting of the winter wheat crop is delayed by wet weather. The French state grains board, FranceAgrimer, estimates that 67 per cent of the soft wheat crop has been planted, up 13 per cent on the previous week, but still well behind the long term average of 82 per cent.

With global wheat demand remaining static, the washup of all of the production changes was an increase in world ending stocks to a record 288.3MMT, 142.6MMT (49 per cent) of which is held outside of China.

On the barley front, the WASDE report was slightly bullish. The USDA cut Australian production by 0.2MMT to 8.4MMT. While this may be achievable, it appears to be on the high side based on the hard finish experienced in almost all the major barley production regions of the country.

Elsewhere, Argentine production was decreased by 0.1MMT to 4.7MMT (5.1MMT last year), the EU was raised by 0.2MMT to 61.8MMT (55.9MMT last year), and Ukraine was increased by 0.3MMT to 9.5MMT (7.6MMT last year).

The USDA increased global barley demand by 0.8MMT, predominantly in Russia, Ukraine and EU and world ending stocks were decreased by 0.8MMT, mostly in Russia and Saudi Arabia. Australian barley exports were reduced by 0.2MMT to 4.3MMT, and China’s barley imports were cut by 0.2MMT to 6.3MMt (5.5MMT last year).

There were several decreases to global corn supply, but most had already been factored into trade calculations, hence the subdued futures market reaction. US production was down by 3MMT after the yield forecast was decreased to 167 bushels per acre (10.5 metric tonne per hectare). Mexican, Ukraine and EU production were cut by 2MMT, 0.5MMT and 0.2MMT respectively, and Russian was increased by 0.5MMT.

US corn demand was down by 1.2MMT, but world demand was increased by 0.8MMT compared to the last WASDE report. World ending stocks are forecast to decrease by 6.6MMT, predominantly in Brazil, China, EU and the US.

The soybean numbers were quite benign, with global production down by 2.4MMT, mainly in India and Canada, and global demand down by 2.4MMT, primarily in India, China and the United States.

The grain market needs news, and the WASDE report provided nothing that wasn’t already known and factored into global thinking. From a wheat and barley perspective, 2019/20 production is basically known, even though the USDA numbers still need a little tweaking in several key jurisdictions.

A resolution, or otherwise, to trade disputes involving China is a key driver in the near term. The big one, of course, is the US standoff, with Trump seemingly dousing the most recent positive news with his usual Twitter diplomacy.

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