Where do spring wheat prices go in the next six months?
What a difference a year makes. The portion of the US spring wheat crop rated good-to-excellent (G/E) are 40 points higher right now than last year, and we saw a big uptick in spring wheat acreage.
The question, moving forward, is how the weather will hold. Spring wheat prices have faced renewed pressures thanks to trade and weather concerns.
Unlike winter wheat, which took a hit from Southwestern drought conditions, spring wheat is looking more robust.
The USDA set production of Hard Red Spring wheat for 2017/18 at 385 million bushels.
This week, we found out that the UDSA is estimating the 2018/19 American hard red spring wheat crop up by nearly 52% year-over-year to 584 million bushels. What we already know is that the US area planted into hard spring wheat is up 27% year-overyear at 12.9 million acres.
With the bigger crop, this means US spring wheat ending stocks will balloon to 283 million bushels. That’s up, 48% year-over-year!
In Western Canada, the hard red spring wheat crop is looking pretty good right now. And it’s bigger than last year as, at 17.3 million acres of spring wheat in Canada, it’s up 9%.
It is only about 1% higher than the five-year average though and it is 5% lower than what Statistics Canada was originally thinking in their April estimate.
However, last year we did get some surprising yields that pushed the size of the crop higher. If we assume a return-to-the-average for yields, this year’s crop should actually come in at a similar size to last year.
Across the ocean, wheat prices have been ticking higher in Europe. Wheat prices are sitting at one-month highs as dry weather continues to weigh on the size and the quality of the bloc’s wheat crop.
Expectations for the wheat harvest and exports have been declining. In Germany, DBV said that the country’s winter wheat harvest is expected to come in at 20.5 MMT. That would be a 15% drop from the previous year.
Meanwhile, weak harvest results in France continues to push wheat premiums higher. Strategie Grains said this week that French 2018/19 wheat production will come in at 33.2 MMT. That figure represents a 4.6 MMT decline from the previous year.
Ultimately, across Europe, soft wheat output expectations continue to slide. Reuters said in a survey that the average analyst is projecting total soft wheat production to drop to 136 MMT, which would represent a 4% drop year-over-year.
On that note, wheat exports from Europe are sitting at a six-year low, and down 16% year-over-year to 20.3 MMT.
The EU could see soft wheat exports rise in 2018/19 to 23.3 MMT. However, there are several factors that could keep that figure in check.
The Russian agriculture ministry said that Russian exporters shipped 40.2 MMT of wheat overseas during the 2017/18 marketing year.
That figure represented an almost 50% jump year-over-year. This jump was achieved due to a massive harvest, combined with stronger logistics and a weaker ruble.
The nation was able to make a big splash in nations like Egypt and Indonesia, and captured market share from countries like Australia that had relied on these markets in the past.
But export volumes for the new marketing year are expected to fall sharply. Hot, dry weather has extended across the Black Sea region and are driving down expectations for the crop size.
We’re looking at a pretty wide range of estimates for this year’s Russian harvest. Whether it’s 65 MMT or the larger 74 MMT estimates, the figure will still come in well below the record-breaking 85 MMT crop taken off last year.
Overall, there is certainly more risk in the market today than there was 6 months ago, what with trade wars being all the rage.
If cooler heads don’t prevail, then indeed, we might see some structural shifts in trade flows of major agricultural commodities that will influence spring wheat prices.