2020/2021 Wheat Crop

03 July 2020

2020/2021 Wheat Crop

In the previous post, I talked about the food demand of wheat in the importing (demand) nations. This post has details of the export supplies. For the research, I have used the global marketing year calendar from July to June and I continue to keep countries into three groups:

>Supply: Argentine, Australia, Canada, EU-28, Kazakhstan, Russia, Ukraine and USA

>Inactive: China and India

>Demand: All others

Production

Estimates for ‘all wheat’ production in the supply block is down by 4.5 mmt versus USDA’s last year and 7.4 mmt from USDA’s current predictions.

There is a negative bias for production for Russia and EU-28 (including UK), neutral bias for Canada, Australia and Argentine and tad positive bias for Ukraine and USA production.

                                             

India is unlikely to export for its domestic policies.

Production
(in million tonnes)

USDA

Analyst

2019/20

2020/21

2020/21

Argentine

19,500

21,000

20,000

Australia

15,200

24,000

22,000

Canada

32,348

34,000

34,000

EU-28

154,776

143,000

142,000

Kazakhstan

11,452

13,500

14,000

Russia

73,610

77,000

77,700

Ukraine

29,171

28,000

23,200

USA

52,258

50,784

51,000

Total

388,315

391,284

383,900

Exports from majors

Under the above stated production levels and domestic demand, I calculate ‘all wheat’ exportable surplus of 164.7 mmt from the supply block, which is 5 mmt less than USDA number.

USA is carrying huge stocks for a decade, which was profitable owing to deep contango in Chicago and later Kansas wheat forward curve. With that gone for past one year, US can export more wheat despite lower production.

Exports
(in million tonnes)

USDA

Analyst

2019/20

2020/21

2020/21

Argentine

13,500

14,500

14,000

Australia

8,200

15,000

12,500

Canada

23,000

24,500

24,500

EU-28

35,000

28,500

27,000

Kazakhstan

6,000

7,100

7,000

Russia

33,500

35,000

38,000

Ukraine

20,500

19,000

15,700

USA

26,399

25,855

26,000

Total

166,099

169,455

164,700

QoQ Exports

1. The chart on the next page shows quarterly wheat exports (in million tonnes) for last five years from major 7; Australia, Argentine, Canada, EU-27 (to outside EU-27), Russia, Ukraine and USA.

2. In new crop first quarter (JAS), more than 40 mmt was shipped in the last four MY’s and the demand will not subdue below this mark in 2020/21.

3. Rather, with lacklustre supply in Q2’2020 (AMJ), demand will be topping last year’s record for JAS and I expect it to be in the vicinity of 45 mmt.

4. Southern hemisphere supplies (Australia and Argentine) will be down further, my guess - below 3 mmt for JAS.

5. Since last year, USA has emerged as the bigger exporter in AMJ quarter for the erosion in deep carry and price power given short supply from Russia, Ukraine and EU-28.

6. Russia and Ukraine have been major contributors in this quarter in last two years. Will Black Sea again step forward?

Conclusion

1. Black Sea wheat will be in highest demand in JAS quarter and prices will reflect the crunch.

2. EU crop estimates have a downward trend and export supplies from Baltics (Latvia, Lithuania and Estonia) will be far less than last year.

3. Russian wheat will not compete to be the cheapest origin in 2020/21.

4. Spread of BWF and Matif will not widen as in past years.

5. With weather and logistics play, soon BWF August contract will trade at a discount to July.

6. Carry in BWF contracts will remain less than the actual cost for better part of the MY.

7. Spread of Chicago and BWF will remain around $20 for July and September expiries.

8. For 2020/21, USA will again command high prices and export more in AMJ quarter.