Chumrau on Wheat: USDA Offers Bearish U.S. Forecast
USDA’s first monthly World Agricultural Supply and Demand Estimates (WASDE) report of marketing year 2014/15 released June 11, 2014, seemed to support assertions that the U.S. is the only major wheat producing country with weather challenges this year. USDA lowered its projected 2014/15 U.S. production from last month but increased its global estimate. The agency attributed both adjustments to weather.
USDA reduced total projected U.S. wheat production for 2014/15 by 500,000 metric tons from May to 52.9 MMT. If realized, it would be 9 percent lower than last year and the smallest output since 2006/07. The outlook for spring wheat is quite positive, but USDA expects a below-average winter wheat harvest leading to lower overall production.
Even though it is finally raining in much of the southern and central U.S. plains, the drought took its toll on hard red winter (HRW) conditions. In a monthly crop production report also on June 11, USDA lowered its HRW forecast by 3 percent from last month to 19.6 MMT. If realized, it would be 19 percent lower than last year’s already below-average crop and the smallest HRW harvest since 2006/07.
Dry weather in the Pacific Northwest also threatens the region’s white wheat crop. USDA pegged winter white wheat production at 5.61 MMT, down 1 percent from last month and down 8 percent from 2013/14. USDA increased its soft red winter (SRW) projection from last month to 12.4 MMT, which would be 9 percent greater than the five-year average but still 20 percent below last year’s sizable crop. USDA will release its first production estimates of spring wheat classes on July 11, 2014.
Higher estimated U.S. beginning stocks at 16.1 MMT this month could not offset the lower production estimate, leaving total 2014/15 U.S. supply down 310,000 MT to 73.3 MMT, compared to 82.1 MMT in 2013/14. With lower available supplies and increased production by competitors, USDA reduced expected U.S. exports from 25.9 MMT in May to 25.2 MMT. USDA pegged total world exports at 152 MMT, the third highest of all time.
Despite a small decrease in global beginning stocks, USDA boosted projected global wheat supplies by 4.1 million to 888 MMT thanks to a 5.2 MMT increase in production outside the U.S. USDA now expects 2014/15 world wheat production to reach 702 MMT. If realized, it would be 2 percent lower than last year’s record output but only the second time world output topped 700 MMT.
The largest month-over-month increase was 1.85 MMT in India, where USDA now expects the country will set a new production record of 95.9 MMT, up 3 percent from last year and besting the previous record of 94.9 MMT set in 2012/13. USDA left India’s projected exports at 3.5 MMT, well below the more than 6.0 MMT exported each of the last two years but still well above the five-year average of 2.77 MMT.
The largest increase over the May production estimates of major exporters was 1.37 MMT in the EU. USDA expects total EU production to reach 146 MMT, up 2 percent from last year and 6 percent higher than the five-year average. Early spring and summer rainfall have significantly increased yield potential in France and Germany. The European Commission this week raised its forecast for 2014/15 soft wheat crop to 137 MMT from 133 MMT previously. Germany’s farm cooperatives increased their forecast this week for 2014/15 output to 25.5 MMT, 2 percent greater than last year. USDA estimates the EU will export 28.0 MMT, which would be the second most behind last year’s 30.0 MMT.
USDA raised its Russian production forecast by 1.0 MMT to 53.0 MMT based on favorable growing conditions. Although Russia’s Institute for Agricultural Market Studies (IKAR) arrived at the same forecast number, it reduced its estimate from 54.5 MMT last month after a crop tour observed dry conditions in the country’s wheat-growing belt. However, IKAR added that timely rains in the next few days would significantly boost production potential just ahead of harvest.
USDA increased estimated Russian exports by 500,000 MT to 19.5 MMT because of the larger expected production and competitive prices, which would be 5 percent higher than last year and 32 percent greater than the five-year average.
Weather has been more favorable in Ukraine and IKAR expects a large grain harvest. IKAR noted that farmers there applied one-third less fertilizer than last year, which could affect production and quality. USDA left Ukrainian production unchanged from last month at 20.0 MMT, down 10 percent from last year but slightly higher than the five-year average. Ukrainian exports were also unchanged at 8.5 MMT, which would be 1.0 MMT lower than last year but 20 percent great than the five-year average.
In May, USDA forecasted global consumption at 696 MMT. It added 3 MMT to that forecast this week due to increased wheat feeding China and the EU. The increased consumption forecast mostly offset higher expected production. It left ending stocks just 1.19 MMT higher at 189 MMT, up 1 percent from last year and 2 percent below the five-year average.
Although USDA did not change its global supply and demand outlook much this month, once again, weather is proving to be the key factor shaping the world’s wheat market. Most major producers hope their luck does not change while many U.S. farmers are still looking to the skies for a shift in their fortunes.
The bulls were again winners in an exciting week for longs and producers. In last week’s report, I said the markets bias would be near unchanged to a bit lower.