WORLD FEED & GRAIN MARKET REVIEW
by John Buckley
Despite the broader wheat surplus, the market had already been primed for some upward movement by the steep downturn in this year’s US wheat crop, as detailed in our previous review.
Wheat prices jump on crop quality fears Drought and heat waves threatening quality wheat crop yields in the US, Australia, Russia, Ukraine and parts of Europe itself have been pushing prices to higher levels across the board this past month. Chicago soft red winter wheat futures, the most-followed world benchmark, rose to its highest levels since June last year, Paris milling wheat futures towards one and a half year highs and US hard spring wheat to its most expensive since mid-2014. The bullish movement, which has more or less ignored this year’s record supply of ordinary soft wheats, was led by hard spring types, the high-protein end of the market. As things were shaping up in early July, it seemed likely that the premiums charged for these best grade bread wheat will continue to increase and probably stay unusually high well into next year. Despite the broader wheat surplus, the market had already been primed for some upward movement by the steep downturn in this year’s US wheat crop, as detailed in our previous review. The USDA’s annual June 30 planting update has now estimated total planted area at a record low 45.7m acres (18.5m hectares) which is 400,000 less than it expected in its March planting intentions report, 4.1m below last year’s acreage and 9.3m under the 2015/16 season’s 55m acres. Even that may not be the end of the story as the dry weather in the US spring wheat crop’s Northern Plains heartlands threatens to turn yet more planted acres over to hay or cattle grazing. Average wheat yields have also been predicted by the US Agriculture Department to slide from last year’s hefty 52.6 bu/acre to 47.3 after a series of weather issues including snow and too much rain, even some flooding, on winter wheat crops approaching maturity. That may result in lower proteins in both hard and soft red winter wheat. But it is the prolonged drought affecting the hard spring wheat states that is causing most concern. In the principle producer states this has become ‘severe/extreme’ in 40 percent of North Dakota and moderate/extreme in at least half of South Dakota. Other neighbouring states are also in trouble with lack of rain, resulting in just 40 percent of the total spring wheat crop making a ‘good/excellent’ rating versus almost double that at this time last year. Clearly yields of these highly prized grades will be down too. Not surprisingly, the price of any better protein wheat is rising sharply. US Dark Northern Spring wheat 14 percent protein has recently shot up to US$317/tonne for export (fob US Gulf ports). That compares with under US$240 in late April. In context, spring wheat comprised just over one fifth of the last US wheat crop and about two thirds of its goes to export customers around the world, frequently for blending up flour grist with the cheaper, lower-grade bread wheat. The possibility of hard spring wheat shortages has already begun to divert more demand to the better quality US hard red winter wheat, which forms the largest component of US production – about 47 percent of last year’s crop and about 30 percent of its total wheat exports. The premiums charged for 12.5 percent protein hard red winter wheat over ordinary grades have already shot up to around US$87 per tonne from about US$30 back in the spring (fob Gulf). Demanding some restraint from speculators, traders and others now backing a decidedly bullish world wheat market, it should be remembered that the world has been awash with growing surplus supplies of ‘ordinary’ (largely soft) wheat for the past few years. In the US itself, 31.6m tonnes was being carried into its new marketing year that began last month - two thirds as much as it currently hopes to produce from the 2017 crop and a probable record large starting stock. Russia is also bringing record old crop stocks of about 11m tonnes
94 | August 2017 - Milling and Grain