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Wheat Market: Weather Concerns, World Production Forecasts

Ernst Undesser
By Stephanie Bryant-Erdmann, USW Market Analyst March 24, 2016

Wheat Market: Weather Concerns, World Production Forecasts

The end of March heralds not only the beginning of spring — which is a crucial time for both winter and spring wheat production — but also the first round of 2016/17 world wheat production forecasts and winter wheat condition reports.

Black Sea — Spring planting began two weeks earlier than normal in Russia and Ukraine thanks to a mild winter, which also improved winter wheat conditions in Russia. As of Feb. 26, Reuters reported 10 percent of Russian winter grains were rated in poor condition, down from 11 percent in the last crop condition report on Nov. 25, 2015. However, Russia agriculture consultancy SovEcon still expects Russian wheat production to decline by 5 percent less in 2016/17 to an estimated 58.0 million metric tons (MMT).

Ukrainian consultancy UkrAgroConsult pegged 2016/17 Ukraine wheat production at 17.3 MMT, down 30 percent from 2015/16. Poor weather during fall planting reduced Ukrainian winter wheat planted area to 14.5 million acres (5.89 million hectares), down 13 percent from 2015/16.

Canada — On March 16, Agriculture and Agri-Food Canada released the latest update to its Canada: Outlook for Principal Field Crops report. According to the report, relatively higher durum prices in 2015/16, especially compared to spring wheat, will increase Canadian durum planted area by 2 percent in 2016/17.

Durum production, forecast to reach 5.90 MMT, will increase an estimated 9 percent year over year. Canada’s winter wheat seeding increased 24 percent with good planting conditions in Ontario. That increase offset an anticipated 4 percent decline in spring wheat seeding, due to increased competition from durum, oilseeds and pulses.

Despite 2 percent lower planted area, expected higher yields will push wheat production higher in 2016/17, according to the report that pegged 2016/17 Canadian production at 23.0 MMT, up 4 percent from 2015/16.

European Union (EU) — According to the March EU crop monitoring service (MARS) report, EU winter conditions provided adequate rainfall and moderate temperatures across the region with a few notable exceptions. Northern Morocco and northern Algeria reported one of the lowest accumulated rainfalls in history. MARS pegged EU 2016/17 soft wheat (non-durum- yields at an average 88.7 bu/acre (5.96 t/ha), down from 93.1 bu/acre (6.26 t/ha) last year.

The EU report forecasted durum yields at 49.5 bu/acre (3.33 t/ha), which would be down 5 percent year over year. The European Commission projects EU wheat production to total 142 MMT, down from 151 MMT in 2015/16.

India — Wheat harvest is currently underway in India, the world’s second largest wheat producer behind China, after heavy rains and hail delayed harvest in several key states earlier this month. Officials are still assessing the extent of the rain and hail damage; however, the timing of these storms is similar to those that cut Indian wheat production to 86.5 MMT last year.

On March 19, Reuters reported as much as 14 percent of the estimated 93.8 MMT of production may be lost. USDA forecasted Indian 2015/16 ending stocks at an estimated 13.2 MMT, down 23 percent year over year.

United States — While USDA will not release the U.S. Prospective Plantings report until March 31, it provided an early estimate in February for U.S. spring wheat and durum planted area of 14.4 million acres (5.83 million hectares), down 5 percent from 2015/16. Weekly crop progress reports for select states noted warm, dry weather in the Northern Plains allowed farmers to prepare for U.S. spring planting two weeks earlier than normal.

However, that same warm dry weather is also decreasing soil moisture across the hard red spring (HRS) and northern durum region. As of March 22, the U.S. Drought Monitor shows abnormally dry conditions across most of North Dakota, the top HRS producing state.

Warm weather also caused winter wheat to break dormancy earlier than normal this year across much of the Southern Plains, leaving it vulnerable to a late freeze. Over the weekend, Kansas and Oklahoma farmers — who produce over half of the U.S. hard red winter (HRW) crop — experienced an extended period of cold weather.

Southeast Colorado also saw the freeze. It will take a few weeks to discover the extent of the freeze damage to the wheat. As of March 21, USDA reported 20 percent of the Kansas crop and 38 percent of the Oklahoma crop was in the vulnerable jointing stage. USDA will resume weekly crop progress reports for the United States on April 4.

We are months away from knowing what the 2016/17 world wheat crop will look like, and as always the weather will have the final say on yields and production. However, with an estimated 26.3 MMT of wheat left in the bins from 2015/16, the U.S. wheat store will continue to supply high-quality wheat to its customers; regardless of what happens in 2016/17.

Ernst Undesser
By Stephanie Bryant-Erdmann, USW Market Analyst March 24, 2016