Critical time for cereals
MAY, June and July are generally the critical months for northern hemisphere cereals and row crops. The seasonal risks facing the global grains market this year, however, take on more importance than previous years due to a forecast generally tightening in worldwide corn and wheat stocks on top of problems already experienced in Brazil and Argentina that has taken the total South American corn crop down 20mmt verse earlier predictions.
EU and Black Sea wheat and barley crops enter the most critical part of the growing season in the next month. In general, it will be challenging to repeat the excellent conditions experienced last year in Russia and consequently, crop forecasts are generally around 8-12mmt lower than last year. The remarkable thing is that Russia has disposed of their current season wheat very efficiently with exports likely to almost reach a record 40mmt by end July, up by a significant amount from the previous year of 27mmt.
For next season, Russia is still forecast to have their second highest crop and second highest exports on record in the 2018/19 season, but we are still around six weeks away from being able to determine the final crop size. There has been recent dryness over April, and early May but forecasts for rainfall are starting to look better on top of recent rains in some areas. Ultimately, the Black Sea region, and Russia in particular, seem very likely to be drawing down wheat stocks in 2018/19 reasonably significantly.
Over to North America and the US Hard red winter wheat crop is in worse condition relative to the five year average. The problems in HRW are documented, but despite a draw down in 2018/19 ending stocks, US supplies remain adequate in the absence of needing to fill the export demand for crop problems elsewhere. The spring wheat in the US is currently slow to get planted while further north in Canada, spring wheat conditions are dry with warmer and drier conditions expected over the coming months.
USDA’s May 10 World Agricultural Supply and Demand report confirmed the tightening grain carry-out stocks in 2018-19, not only for the US wheat and corn but the global balance sheets as well. While there is still a long growing season ahead, it’s hard to see any 2018-19 upside production surprises that could pull carry-outs back up to or above 2017-18 levels. If these forecasts confirm over the next few months, it will justify to buyers and farmers why prices have recently moved higher. If production comes in below these levels, we quickly get stocks down to levels where we change consumption/feeding patterns or even ration some demand seasonally.
For Australian producers, all the above should see a supportive tone to values at least for the next three to four months. We would continue to see potentially higher values if we were to see crop problems develop in any of the major producing countries of corn or wheat. Weather forecasts and actuals face increased scrutiny and dependence and consequently will impact prices and volatility more than they have in almost five years.