Nidera Australia Weekly Market Report – 20th June, 2017
Peter McMeekin, Nidera Australia Origination Manager
The fate of the North American winter and spring crops have been hogging the limelight on market wires and futures exchanges over the last few weeks. Meanwhile, on the other side of the Atlantic the European crop has, up to now, been ticking along with relatively few issues.
However, the benefits of the widespread rainfall throughout Europe in May, are being eroded by hot and dry weather across many parts of the continent in the first two weeks of June. This is jeopardising production, particularly in western European countries, where above average temperatures are forecast to continue for at least the next ten days.
The recent dry conditions has led to agro-economic consultancy Strategie Grains to cut this year’s European Union (EU) soft wheat crop by 1.1 million metric tonne (MMT), to 141.6MMT. Nevertheless, this is still 5.5MMT above last year’s 136.1MMT crop. The yield downgrades were primarily in France, Germany and Spain, with the later suffering the worst of the hot, dry weather.
The barley story is quite similar, with production being cut in the same three countries. Strategie Grain’s latest EU production forecast is now 58MMT, a reduction of 1.6MMT month-on-month, and about 2MMT below last year’s final production number.
Like in the US, and here in Australia, the weather is now a big watch for the European winter crop. The aforementioned countries certainly require good rains to arrest the downward crop revisions, and parts of central and eastern Europe also require more rain to maintain current yield forecasts. Widespread frosts, particularly in northern parts of the EU, are also playing havoc with their soil moisture profile.
In Russia, spring conditions have generally been quite favourable, with crop yield estimates running at average to above average, at this stage of the season. Favourable to wet growing conditions across the Caucasia and Volga Regions of Russia has seen wheat productions estimates increased 2MMT to 69MMT. This is only 3MMT under last year’s record crop.
Weather forecasts through the Baltic states, Poland, Belarus and down into Ukraine have been dry in recent weeks, sparking upward price reactions in local markets. Until early June, the central-northern reaches of the Ukraine had seen less than fifty per cent of normal spring rainfall but recent falls have eased the concerns and the crops have reportedly held on extremely well.
Further south, the recent rains have added to production, compensating somewhat for production losses further north. There is also very good moisture available for the summer crop planting program in this part of Ukraine. The satellite-derived vegetation health data indicates excellent conditions in southern and eastern portions of the country. In contrast, there is poor vegetation health in central Ukraine due to spring dryness and drought.
With harvest in the Black Sea region fast approaching, the condition of their crop and the impact on export values will have a huge impact on the pace of Australian exports in the second half of 2017. Australia is certainly off the barley menu for Saudi Arabia based on price relativities, and the recent weather related rally in Australian values, may bring Ukraine into the China game.
On the wheat front, prices have rallied across all port zones in recent weeks, making the export task problematic for the back end of 2017. Simple numbers say that there is plenty of wheat in Australia after a record 35MMT crop last season. The big question is will Australia be competitive enough to find the required demand to maintain a wheat export program exceeding 22MMT? In the absence of a significant rally in Black Sea values, it would seem highly unlikely.
This will leave Australia with a carry out approaching 10MMT of wheat alone. Of course, this may come in handy if new crop production continues to decline as much, and as quickly, as the domestic market rally over the past week suggests.