The grain market has been busy speculating about the Russian wheat crop for some time now. It is now a certainty that the record volumes of the 2017 harvest will not be achieved this year.
Various analyst firms estimate an average harvest of 71,1 million tons of wheat. The 70 million tonne level is a magical limit that can decisively change the course of the market. The USDA is now firmly rejecting this. The market is even wondering whether this reduction is not too extreme. For Europe it reduces yields by 1 million tons, due to drought in Germany and Poland.
American stock exchange
Last year, the US stock market reached its peak ($198,14 per tonne) in the first week of July. Then it went down hard; partly due to reporting in the WASDE report. However, the situation is not comparable to the current state of affairs. For example, the long/short funds on the CBoT in Chicago maintain a smaller long position compared to last year. When the Russian harvest went from 72 to 77 million tons, it broke their confidence (resulting in a sharp decline).
The USDA estimates the global wheat harvest to be 1,2 million tons lower. Higher yields in the United States (US) and India cannot compete with lower yields elsewhere in the world. The country expects more of its own exports as a result of the situation in Russia. However, these figures are grist to the mill of stock market traders. The CBoT closed at $12 per tonne on Tuesday, June 196,40, a gain of $7,35. At the Matif in Paris, the September contract was added €2,50. It closed at €183,50.
A volume of 68,5 million tons is still the fourth largest ever in Russia, but 3% below last year. The closing stocks are very large, thanks to last season's large harvest. Stock market traders are the most bullish in 19 months. Russia's export position will be reduced by 10 million tons, giving other countries a better position. Global imports have also been adjusted downwards. Due to 1,5 million tons less consumption, the final stock is increased by 3 million tons. However, they are still 1,8 million tonnes below last year's record.
The reason for reducing the Russian harvest is the persistent drought in the south. This is the most important wheat production region. In Siberia and the Urals it is cold and wet; in extreme cases snow even falls. Such conditions have made the sowing of summer grains difficult. The barley harvest has now started in the south of Russia and Ukraine. However, it is still too early to say anything about returns.
Drought in Australia
Another ingredient in the grain market is Australia. The country has had a small harvest due to drought. In total this concerns 21,2 million tons of wheat, 38% less than in the previous winter. The winter wheat sowing season also started very dry. It has now rained in western Australia, where most wheat is grown. This allows all sown wheat to germinate.
It remains extremely dry in the east. Growers can sow wheat until June, but have not always done so. The only alternative is to sow rapeseed. However, then it has to rain. Despite the 30 millimeters of rain, it remains extremely dry. Analysts therefore expect a wheat harvest of 23,5 million tons, 1 million tons less than previously thought.
USA
In the southern US, 14% of winter wheat has now been harvested. That was only 1% 5 week earlier. About 38% of the crops are in good to excellent condition. Rain and thunderstorms cause local flooding, but are very good for corn and soy crops. The USDA estimates the total wheat harvest at 1,827 million bushels, an increase of 6 million. Wheat export expectations are 25 million bushels higher due to the situation in Russia.
Record high export figures and extensive processing into ethanol are lowering corn stockpiles in the US. This causes production and use to grow further skewed. Corn stocks fall to their lowest level since 2013/2014. Less corn is also expected worldwide.