Global world wheat prices have increased sharply in recent weeks, fuelled by concerns over Southern Hemisphere crops and a tight world supply situation, albeit demand remains generally weak – with the exception of India - at this stage. The key concern remains Australia’s production with latest expectations of a crop between 12-15mt this season.
In Argentina, conditions have improved in recent weeks following widespread rainfall, albeit yield is expected to be down on average due to the poor start to the season. Of the 5.3mln ha of planted area this season 46% is rate good to very good, 21% average and 33% poor. In addition, some crops have also reportedly been damaged by hail this week. With further rains forecast over the next 14 days in Argentina, production is likely to form a base around 13mt with some upside likely if conditions remain favourable in coming months. That said, there are some expectations that farmers in northern Argentina – where conditions have been driest – may feed their wheat crop to cattle and plant corn following these recent rains.
Conditions have remained generally favourable for harvest in Canada despite some wet conditions in northern Alberta. An official crop forecast from Stats Can is set to be released tomorrow with expectations mixed as to any change from the current forecast. There is not likely to be any significant change from the 25.9mt currently forecast with the majority of the crop of high quality this season. Given the tight world supply situation this season and the resultant high world prices, Canada is likely to run a full capacity export program in the 2006/07 season with around 20-22mt expected. Given the tighter Australian export program into Asia this season -basis the lower crop size, consumers will be left to turn to Canada, the USA and to a lesser degree the Black Sea for supply.
Prices in the Black Sea have been strongly influenced by the tight supply situation and higher prices in the EU-25 this season, with demand from India also helping support the market. Based on current prices an aggressive export program is expected from both Russia and Ukraine. There remain significant concerns surrounding the quality of the Black Sea crop this season with widespread bug damage being reported in Ukraine and to a lesser extent Russia. Whilst, feed wheat consumption in the Black Sea is expected to be low basis current prices a lot will depend on them being able to find export destinations willing to use their bug damaged wheat as milling wheat.
The Ukrainian government is also increasing its presence in the market over concerns of a shortfall in domestic wheat requirements. As a result, they have increased intervention demands and there remain rumours that they will start a quota on exports.
There has been significant substitution of barley, corn and other proteins for feed wheat in the Black Sea and also the EU-25 during the first quarter of the 2006/07 season. As a result feed markets in Europe and the Black Sea have tightened for all grains. In addition, the decision by the European Commission not to issue barley export refunds so far this season, has increased demand for barley in the Black Sea. As a result prices have skyrocketed in recent weeks.
Brazilian demand expected to be strong in 2006/07. At this stage, the Brazilian government has refused to remove the 10% import tax on non-Mercosul (South American Trade Treaty between Brazil, Argentina, Paraguay and Uruguay). At this stage we are factoring in 6.5mt of imports in 2006/07 however this may shift as high as 8mt.
In the northern hemisphere, new season plantings have begun with expectations of a significant lift in plantings expected basis the current high prices. Given normal weather production in the 2007/08 season could significantly change the current tight supply situation we have in the world market.
At this stage, plantings in the US are 54% complete with 25% of the crop emerged. Plantings in Oklahoma have been delayed in some parts due to the continuing dry conditions. Moisture levels in Kansas are 50% short to very short whilst in Oklahoma moisture remains around 80% short to very short. So whilst, recent rainfall has helped improve sentiment and encourage plantings in the central plains further follow up rains are needed.
Similarly, in the Black Sea wheat plantings are expected to increase strongly in the 2007/08 season based on the high prices. Meanwhile, some anecdotal evidence suggests some producers in Eastern Europe (such as Romania) are shifting to rapeseed and other oilseeds to meet increasing demand from bio-diesel industry.
The next wheat production outlook will be 3rd November.
The material in this article is intended only as general information for growers and is current as at the date above. Please note that the information in this article is an opinion only and does not represent a prediction or a forecast. This article is not intended to be advice and you should not rely upon it. You should make your own enquiries as to the accuracy of the information in this article. Although AWB has exercised reasonable care in the preparation of this article, no representation or warranty is made as to the accuracy, completeness or reliability of the information. In many cases, AWB has relied on third parties for information and this information may not be complete. AWB will not be responsible for, and excludes, all loss and damage to any other person howsoever arising from this article.