After a record crop last year Australia had a wipe-out this year
Just need a little help from Mother Nature to get us started and those massive short positions held by the large traders could be what propel us higher
When we look back at this past year in the world wheat market, we can certainly say it was indeed a year of extremes. Coming into this production season, the world had record carry-over stocks for the fourth year in a row. Most analysts agreed that in order for wheat to have a chance at a bull market, we needed a major production loss in at least two major producing countries. It certainly looked like that was going to happen, until Russia started talking about another record crop – their second in a row.
The production estimates coming out of Russia increased almost every week in June and July, and by the time harvest began the world knew a phenomenal grain crop was on the way. The latest estimate on Russia’s wheat crop from USDA is 83 MMT, but private Russian analysts peg it even higher. As the world came to grips with Russia’s huge stocks, Australia had its own disaster. Drought welcomed the new growing season and then heavy rains pounded the mature wheat at harvest. After a record crop last year, Australia had a wipe-out this year.
To wrap up this production season, world wheat production was 2 MMT more than last year, but ending stocks will be 13 MMT higher. As we look to this year, we expect that winter wheat plantings will be down again, likely mostly in hard red winter wheat. Crop conditions were declining as it went into dormancy, and a major cold snap as this is being written threatens to stress much of the crop across the plains as snow cover is sparse.
Spring wheat acres will likely be down as well, but that market still has time to buy some acres back. At $4 bushel (25.216 Kg), buyers are willing to step up. Analyst doesn’t expect to see wheat prices get below $4 on the futures, for either Chicago or Kansas City. There is a chance that Chicago will gain on KC if Argentine weather stays hot and dry during January & February, which would support corn prices and thus Chicago wheat. But KC won’t stay discount to Chicago for long and so look for trade opportunities there. Minneapolis futures have a big job to buy back acres, so things could get interesting in April/May.
In India the total area under wheat crop so far was 27.385 million hector, 5.8 per cent lower than last year’s 29.074 Million hector. While Madhya Pradesh reported a shortfall of 0.776 million hector as compared to corresponding period in the previous rabi season, Uttar Pradesh reported a 0.493 million hector dip and Rajasthan a 0.245 million hector drop in area respectively. Among other two major wheat-growing States, wheat acreage in Punjab just managed to cross the previous seasons’ corresponding acreage of 3.470 million hector, but that in Haryana is marginally down.
Just need a little help from Mother Nature to get us started and those massive short positions held by the large traders could be what propel us higher. Date: 1-1-2018