World flushed in grain

What will be the trigger?

EUROPEAN cereal crop estimates have been inching lower in recent weeks, with Spanish production the biggest culprit. Production in Spain is concentrated in the northern parts and the early spring dryness has developed into drought conditions, seriously impacting winter crop production.

Spanish reporting agency Agroinfomarket estimates that the decreased production will force an increase in wheat imports by as much as 1.5 million metric tonne (MMT) to supplement lower domestic production into the stock feed sector.

With barley production also hit by dry weather, there is certainly expected to be increased demand for road freight out of France and coasters from the United Kingdom to fill the shortfall.

Meanwhile, recent rain events across other parts of western Europe have stabilised production forecasts for France, Germany and Britain, after they also suffered a relatively dry start to the spring.

This was reinforced last week by the French farm office FranceAgriMer, when they only made a slight downward adjustment to crop ratings for the week ended May 29.

European Union wheat production estimates have been trimmed almost 3MMT to 141.9MMT.

However, this is still 6.4MMT above last year’s production, which was severely impacted by dry conditions across many parts of France last spring, culminating in the worst French crop in 30 years. Barley production has also been reduced, down almost 4% from 59.5MMT to 57.2MMT. This would reportedly be the smallest EU barley crop since 2012.

In North America, weather conditions have certainly been variable over the past month. There are reports of drought conditions developing in the Canadian Prairies and down into the US states of Montana, Wyoming and the Dakotas. Conditions have worsened across the area over the past couple of weeks and the current drought conditions are a reflection of both long-term moisture deficits dating back to last summer and the recent lack of rainfall.

North of the border in Saskatchewan, Canada’s major grain producing province, there are reports that as much as 750,000 hectares intended for spring wheat and canola, will go unplanted as a result of extreme rainfall and extensive waterlogging.

There has supposedly been some catch-up in recent weeks, with the odd dry window providing opportunity to get onto some of the better drained paddocks.

On Monday night (Australian time) the United States Department of Agriculture (USDA) released the latest crop ratings with the spring wheat crop copping a hiding.

The good to excellent rating plummeted 7 percentage points to 55%, dramatically lower than the 79% rating at this time last year, with the aforementioned states the worst hit by the downgrade.

Minneapolis spring wheat futures have certainly seen plenty of interest over the past month, with the premium over Chicago soft red winter futures blowing out from US128.25 cents per bushel (c/bu) to US159.25 c/bu (A$63.25 to A$78.50) over that period. Basically the Chicago contract has rallied a few cents but the spring wheat contract has rallied US34.75 c/bu (A$17.15), reflecting the poor production outlook.

In the meantime, harvest of the US hard red winter (HRW) wheat crop is ramping up in the south of the country. Reaping in Texas is reported at 58% completed, a huge jump on a week ago and more than double the five-year average.

Oklahoma is now in full swing with 25% of the harvest in the bin, but north of there the Kansas farmers have the headers cleaned up and ready to go, yet the crop isn’t quite ripe enough. Yields and quality in the harvested area to date are on the low side, however that is expected to improve as the harvest moves north into the higher producing Midwest states.

As I have said many times now, the world is flush with grain.

Any sustained upward movement in values will be as a result of a crop disaster in one of the major exporting origins. The weather has been playing games with some, but not all, of the northern hemisphere producers.

The barrels are loaded with the funds holding large short positions in both wheat and corn.

The market only needs a trigger for values to push higher.