Wheat production has been good in the United States, Brazil and Canada this season. Contrarily, Argentina, the largest producer in South America, has suffered due to dry climate and drought. At a global level, the prices of wheat futures are estimated to fall due to a bumper harvest.
US Wheat Futures Fall
On Friday, the US faced significant losses against other currencies. Thus, causing fear among the investors that this could reinforce the view that the economy is slowing down. Further, on Friday the weakening of the dollar led to wheat futures marginally increasing. However, the high might be short-lived as wheat is looking to face its highest weekly loss in over a year. The ample supply of the grain is the prime reason for this. For now, wheat futures that were the most active on the Chicago Board of Trade suffered losses of about 5%. Also, this has been the highest weekly loss since March of 2019.
The winter harvest season in the US is also nearing completion. Traders attribute favourable characteristics and high protein to the recent harvest. And, the crop quality is the best this year since 2016, remarks a Michigan miller. Further, they are looking forward to the spring harvest season.
Rising Global Wheat Supplies
The Ukrainian ProAgro consultancy increased its wheat harvest outlook of the year by 0.52 million tonnes from last year. It has currently forecast 26.59 million tonnes against the previous year’s 26.07 million tonnes. Similarly, the grain export forecast increased by 600,000 tonnes. Further, the farmer advisory service Farmlink Marketing Solutions estimates an increase in harvest among Canadian farmers due to favourable market conditions.
Jim Gerlach, the President of US Broker A/C Trading, said that the early harvest reports out of North Dakota showed big yields in the state’s spring crop. However, high global supplies have led to the fall of wheat prices all over. The most active CBOT September soft red winter wheat contract hit its lowest on July 8th. Additionally, KC hard winter wheat futures and MGEX Spring wheat also dropped to their lowest.
Low Harvest in Argentina Due to Prolonged Drought
Severe drought has affected parts of Argentina since June this year. Subsequently, it has put a lot of pressure on wheat cultivation in the country. Owing to the dry weather, the Buenos Aires Grains Exchange cut its wheat planting area from 6.8 million hectares to 6.5 million hectares. Also, the 21 million tonnes target set by the exchange now seems unachievable due to the poor weather conditions.
The report put out by them on Thursday highlights that the back and forth frosts and the lack of rainfall have further negatively impacted the wheat fields. Adding to the misery, the farmers have already sown 98.3% of the estimated wheat area, whose fate remains unknown in the drought.
Increase in Wheat Production in Brazil
Whenever South America’s wheat production is mentioned, all the attention goes to Argentina as it is the largest producer in the continent. But this year, Brazil has managed to outperform the grain forecasts and is in good stead to achieve a good harvest. Accordingly, Brazil’s cultural statistics Agency, CONAB reports that the planted area in all major wheat growing states expanded to 2.3 million hectares.
Major grain-growing regions of the country are in the states of Parana, and the Rio Grande do Sul. Thereby, the final planted area in Parana is expected to increase by 6.5 pc. And, it is likely to rise by ten pc in the Rio Grande do Sul this year. Acknowledging that, CONAB has predicted the Parana yield to be at 3 million metric tonnes per hectare. In addition to that, the local agencies have gone as far as 3.6 million metric tonnes per hectare. Last year, crop failure affected wheat production in Parana. But this year, the local agribusiness consultant and T&F Consultoria Agroecmica suggests nearly 7.3 million metric tonnes of productions. This might be the case if the favourable weather conditions continue.
In May, Brazil’s wheat stocks were at an all-time low because of high domestic demand due to the virus. Nonetheless, it has picked up quite well after that. The drought in Argentina has reduced supplies from the country, while Brazil’s favourable weather conditions increased its grain production.
Unexpected Rise in Russian Wheat Prices
According to Reuters News Agency, the farmers are holding on to their wheat produce, increasing grain prices. Because of this, wheat merchants who had relied on selling to the Asian market are facing massive losses. In this regard, the IKAR consulting agency said that wheat prices eased after weakening rouble against the USD and the arrival of the new harvest. Further, they mentioned that global wheat prices might reduce at the end of the year. Also, they said that holding back of produce by Australian farmers could offer support to the market.
In conclusion, the harvest of wheat seems robust in most places. The impact on prices will largely depend on the upcoming spring harvest and also the weather conditions. A good harvest will lead to easing of prices at a global level.