Nathan Cordier, chief analyst at Agritel, presented the outlook for the key agricultural markets for the 2020-21 season.
In the northern hemisphere, Agritel predicted European all-wheat availability (soft and durum) for the coming year would fall by nearly 12% to 136.5 million tonnes, the lowest since the 2012-13 season. Significant declines in western European production were caused by a wet autumn which prevented a full seeding program, and a very dry spring.
Eastern Europe saw a similar pattern, with Bulgarian and Romanian harvests down by around 30% compared to the five-year average. However, the Baltic region had a much better outcome, with the harvest coming in 30% higher than the five-year average. Poland, too, experienced a very healthy harvest.
Low stocks at the start of the marketing year have exacerbated the situation. In the last marketing year Europe exported more than 36 million tons, the largest shipments of any exporter. There may not be enough wheat to meet animal feed demand, which is forecast to be 51 million tons in the coming year, far below previous years.
In Russia, like-for-like wheat yields began the year at very low levels in the southern regions, but have improved so that overall output is at similar levels to previous years. As a result overall output is forecast at close to record levels for the 2020-21 marketing year at 83.5 million tons.
Local prices in Russia are at their highest ever levels of around 80 rubles/ton due to significant currency devaluation. Farmers are reportedly keeping product back, which is tightening the domestic and international market. If the ruble continues to lose value, farmers will likely keep grain in storage, and this may further support the local cash market.
Demand for Russian demand began the marketing year at extremely high levels, despite the poor start for the southern growing regions. Exports in August were high, and Black Sea traders are expecting large shipments in the coming months.
In Ukraine, production has fallen to 25.6 million tons, compared with 29.2 million tons in the previous year. Exports are already higher than previous year levels: in the first three months of the marketing year Ukraine has already shipped more than 40% of its annual export target, according to Agritel forecasts. There is high demand for Black Sea wheat due to Europe’s poor harvest.
In the United States, the harvest is relatively stable compared to previous years. While winter wheat planting was at its lowest level for many years, demand for all wheats in the first 15 weeks of the marketing year is at its strongest for seven years, and the three-week average export total is running at its highest level since at least the 2015-16 season.
Demand for US wheats is strongest from China, which is buying more wheat, corn and soybeans: Chinese monthly wheat buying is at its highest level since at least mid-2016, with shipments from the US, Canada and France particularly prominent.
Amid the bullish sentiment, investment funds are particularly keen on wheat at the moment: the total managed funds invested in CBOT SRW are at near record levels of length, and high for the time of the year. Without any new bullish elements, we can’t really expect more support from the US investors.
Agritel predicts total supply from the six major exporters in the northern hemisphere to reach 344 million tons in 2020-21, down 10 million tons from 2019-20.
In the southern hemisphere, Argentina’s season has been very dry, with almost no rain since early May in the main growing region of Cordoba. Current crop conditions are far below previous years. We can expect lower yield: Agritel is predicting 2.85 tons/hectare, far below the yield trend. Total crop is estimated at 18.2 million tons, below previous estimates.
In Australia, rains were sufficient, with the crop predicted to reach nearly 30 million tons. This could put pressure on the market from mid-December, though we understand there has already been substantial buying in advance.
Estimates for the leading eight producers this year are at 392 million tons, slightly higher than in 2019-20, but with lower stocks at the start of the period. Agritel forecasts that global producer stocks at the end of the year will be quite tight at around 62.9 million tons, in line with last year’s levels.
The longer-term outlook sees traders already looking ahead to the next marketing period. Since 2014, winter wheat planted areas have been rising in Russia, with more than 16.5 million hectares expected to be growing this coming year. Yet the overall weather outlook is dry, with almost no rain in southern Russia since July – more than 50% of Russian winter wheat comes from here.
Winter wheat planting areas will increase by around 10-15% in the US, similar to Russia, but again there has been little rainfall in the central plains and we could see higher prices as a result.
In Europe, planting areas will increase by around 2 million hectares after a low planting in 2019-20. This should take production over 150 million tons, around 15-20 million tons above 2019-20 winter wheat. But the market will be primarily focused on Black Sea and US conditions.
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