Prospects for world wheat production took three blows within 24 hours.
First, Canada’s farm ministry, AAFC, cut its forecast for domestic sowings this year by 406,000 hectares (1.0m acres), leading to a 1.1m-tonne downgrade to production expectations, with area seen lost to canola, and barley.
Terry Reilly at Futures International quoted one market estimate that “the spread between canola and spring wheat [prices] is at its widest level since 2012”.
‘Substantially lower crop’
Then SovEcon lowered its estimate for this year’s Russian harvest by 1.5m tonnes to 76.2m tonnes, in part down to losses to “ice crust” in parts of Black Earth and Volga Valley regions, and in part to reduced expectations for spring sowings, after the country’s export tax cut the grain’s financial appeal to farmers.
Russia, which harvested 85.9m tonnes of wheat last year, “could produce a substantially lower wheat crop in 2021,” said Andrey Sizov, the SovEcon managing director
“The main issue is that plants entered the current winter in the worst shape in a decade after abnormally dry autumn.
“The new wheat tax also has a negative effect on the 2021 crop. Some farmers will try to switch from wheat to other crops, mainly oilseeds and pulses.”
‘Prices are projected to rise’
The third knock came when the USDA forecast US wheat sowings ahead of the 2021 harvest at 45.0m acres, below market expectations of 45.5m-acre figure, and reflecting enhanced competition for spring sowings from other crops.
While a winter wheat number of 32.0m acres was already known, “higher expected net returns for corn and soybeans in the northern Plains are anticipated to reduce combined spring and durum wheat plantings for 2021-22,” USDA chief economist Seth Meyer said.
The figure implied a cut of some 1m acres in sowings of durum and spring wheat, and was also below, for instance, an estimate of 46.4m acres reported two weeks ago by a Farm Futures survey.
And it implies higher values, with Mr Meyer saying that “wheat prices are projected to rise as lower carry-in stocks and supplies lead to tighter ending stocks,” with the average US farmgate price in 2021-22 pegged at $5.50 a bushel, up $0.50 a bushel year on year.
‘Significant damage is possible’
And that is even before getting to what may, or may not, have been lost to the US winter crop from cold weather.
“Winter wheat harvested area remains a question given prolonged dryness and recent extreme cold temperatures,” the USDA said.
Benson Quinn Commodities said that it typically did not get “very excited about the potential of winterkill, but we aren’t typically dealing with temperatures this cold for this duration.
“Texas had an estimated 13% of its crop headed, which gives you a much larger percentage of crop that had reached stages where significant damage is possible.”
Sure, all this comes when world wheat stocks are expected to close 2020-21 at record levels – albeit with an undue amount of these inventories in China, whose supplies, in not being available to the world market, are seen as less important in price determination.
But Canada, Russia and the US are all major exporters, whose stocks are key to market sentiment.
And with the dollar falling back 0.4% too to make dollar-denominated assets more affordable, Chicago soft red winter wheat for May closed up 2.7% at $6.65 ¼ a bushel, with technical factors cited by some observers as supportive too, including spreading against corn/soybeans.
Certainly, Kansas City hard red winter wheat for May, contract less frequented by speculators (although more sensitive to US winterkill ideas) added a more modest 2.0% to $6.43 a bushel.
Mr Freed noted too that “rumours that Russia may drop their export tax policy”, which in the last session “may have weighed on futures appear unfounded”.
The row crops far underperformed wheat, finding less in the USDA Forum to excite investors.
That said cotton, an ag market star of late, did manage to crawl 0.4% higher to 90.30 cents a pound for May.
Although the USDA did forecast US cotton sowings this year at 12.0m acres, some 500,000 acres above last week’s National Cotton Council figure, it also forecast a marked rise in average US prices in 2021-22, to 75.0 cents a pound for upland fibre, up from 68.0 cents a pound expected for this season.
“With a considerable reduction in carry-in stocks, and steady exports, ending stocks are expected to again decline in 2021-22 despite growth in the crop,” Mr Meyer said, adding too that “unusually low sub-soil moisture in the Southwest adds uncertainty” to US harvest prospects.
“Cotton area harvest remains in question given persistent dryness in some major cotton areas.”
‘Prices are expected to decline’
But corn and soybeans proved less able to catch the tailwind of an easier dollar, with more attention on the prospect of a combined 182m acres in US sowings next year, as revealed by the USDA – the highest figure on record.
“Corn prices are expected to decline slightly [in 2021-22] with larger corn acres and an expected return to trend yields leading to slightly higher ending stocks with strong global demand moderating the price decline on what is expected to be a large crop under normal weather conditions,” Mr Meyer added.
Corn futures for March ended down 0.5% at $5.50 ¼ a bushel.
“We’ll need a new catalyst on ether Brazil/US weather or a burst in Chinese buying before breaching existing highs,” said Richard Feltes at RJ O’Brien.
US vs Brazil
Soybean futures for March ended down 0.6% at $13.83 ¾ a bushel, feeling pressure from the Brazilian harvest.
“Brazil is offering soybeans well below the United States which is taking away our export interest,” said Karl Setzer at AgriVisor.
“In fact, Brazil soybeans have now deteriorated to a point where US imports would be possible,” an outcome “most likely into the Southeast US feed market”.
“The USDA pegged 2020-21 soybean imports at 35m bushels in last week’s Wasde report, but the general feel is this total is too low.”
‘Several bullish factors’
Back in New York, raw sugar futures accelerated their winning run, ending for May up 3.0% at 16.59 cents a pound, the best finish for a spot contract since May 2017.
And this despite a fall in some energy markets’, whose strength, in boosting ethanol’s competition for cane, has been seen as one support for values.
In fact, “with several bullish supply/demand factors working in its favour, sugar should be able to extend this rally even if energy prices run out of steam” ADM Investor Services said earlier, noting factors including the prospect of a 500,000-tonne Pakistan tender for white sugar, and disappointing Russian output.
The 2020-21 beet harvest in Russia has finished with 31.26m tonnes processed, “resulting in sugar production of 5.18m tonnes which is some 2.6m tonnes less than last season,” ADM’s Howard Jenkins said.
Furthermore, there was note of an estimate by Czarnikow of world consumption recovering to 168.25m tonnes in 2021, from 163.67m tonnes last year, and taking it back marginally above 2019 levels.
‘Has not improved’
Meanwhile, arabica coffee for May added 1.5% to 129.30 cents a pound, in a rally attributed in part to technical factors, but also to fresh worries over Brazilian production.
Veteran softs analyst Judith Ganes said that shed had undertaken a fresh visit to southern parts of Minas Gerais, the top Brazilian arabica-growing state, “to observe the crop after heavy rains returned to see if there was any change in the crop outlook.
“There isn’t. The crop stabilised with the return to abundant rains but has not improved either.
But as a twist, she warned that the dryness which has hurt 2021 crop prospects has undermined the outlook for 2022 too – which is more important for the market, in being an “on” year for Brazilian arabica output (which goes in a cycle of alternate higher and lower production).
“After the 1985 drought hurt the 1986-87 crop, 1987-88 came back strong. That is NOT going to happen” this time, she said, adding that “2022-23 is not going to see a massive rebound”.
‘Most bullish aspect’
This forecast is based on an observation that “there is between a 30% to 40% observed reduction in growth of new nodes” needed to produce blossoms later this year, and cherries for 2022.
“The market can’t bank on a rush of heavy supplies after stocks are depleted in 2021-22.
“To me that is the most bullish aspect of the situation and comes at a time of demand recovery.”