Global Perspective | Drought puts heat in wheat

Drought puts heat in wheat


Grains
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The wheat market is set to tighten, and remain tighter into 2019, and, in fact, all indications are for the first global wheat market deficit in six years in 2018-19.

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SIGNIFICANTLY-reduced prospects for Australian wheat export volumes in 2018-19 are now joined by declining production and export prospects for the Black Sea region and Europe.

And global prices have moved higher as production concerns grow.

In Europe, dry weather  – especially across northern Europe affecting Germany, the Scandinavian and Baltic nations and Poland – has prompted a downward revision of wheat production prospects.

Lower yields and lower harvested hectares are now on the cards.

In its latest outlook, the US Department of Agriculture has revised down wheat production for Europe by four per cent year-on-year and from the five-year-average, although we expect this has not yet captured the full extent of reduced prospects.

This comes at a time when demand for feed grains in Europe will be elevated.

The dry has contributed to reduced grazing feed availability, as well as tightening grain stocks.

The current and expected demand gap is sufficiently marked that a number of countries in Europe have sought drought assistance from the European Commission.

In response, the Commission has announced the temporary exemption of Sweden, Denmark, Estonia, Finland, Latvia, Lithuania, Poland and Portugal, from an European Union environmental regulation.

This environmental regulation requires farmers to set aside a portion of the land to fallow.

This temporary exemption will allow farmers in those countries to use this land to graze stock and grow fodder until the drought is considered over.

Further east, harvest estimates for Ukraine, Russia and Kazakhstan put yields lower year-on-year, ranging from down two per cent for Kazakhstan to 15 per cent for Russia, due primarily to lower rainfall during the growing season.

Ironically however, Russian new crop wheat availability has also been affected by untimely harvest rainfall in central areas.

Meanwhile, reports out of the US have also contributed price support.

Despite the US spring wheat crop tracking at “80 per cent in good to excellent conditions” this season, the latest US Crop tour report was for spring wheat yields to be down about 18 per cent on the five-year average.

Together with the concerns out of Europe, the Black Sea and Australia’s poor harvest outlook, this US news has taken prices globally to the highest levels in three years.

In response to increasing wheat prices, use of wheat as livestock feed can be expected to contract globally in favour of corn, though with less contraction occurring in food usage.

As such, the wheat market is set to tighten, and remain tighter into 2019, and, in fact, all indications are for the first global wheat market deficit in six years in 2018-19.

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