HOTTER and drier than normal weather patterns over the European portion (west of the Ural mountain range) of the Russian Federation since late May appears to have had a drastic impact on the size of this year's wheat crop and projected exports for the 2019/20 marketing year.
Production estimates have been lowered as a result, but they are still higher than last year and, if they come to fruition, will be the second highest on record for the world's biggest exporter.
Early last week two of Moscow's leading agricultural consultancies, SovEcon and IKAR downgraded its production and export estimates and the US Department of Agriculture (USDA) followed suit by doing the same when they released the latest World Agricultural Supply and Demand Estimates (WASDE) later in the week.
However, the lack of consensus among the agencies demonstrates how difficult it is for the global trade to get an accurate picture of production and potential exports this season.
SovEcon had previously been the most optimistic regarding the size of this year's crop, but it made the biggest cut due to the recent drought-like conditions.
SovEcon's previous production estimate of 82.2 million tonne was slashed by 5.6 million tonne, to 76.6 million tonne.
IKAR, on the other hand, was not as pessimistic about the effects of the recent weather, cutting their production estimate from 79.3 million tonne to 78.5 million tonne.
However, that number was revised down by another one million tonne early this week to 77.5 million tonne, and IKAR suggested that further cuts may come as more harvest data becomes available.
SovEcon also took a knife to their export numbers, cutting expectations by 4.6 million tonne, to 33 million tonne.
That is 3 million tonne lower than 2018/19 wheat exports, despite their production forecast being around 5MMT higher than last season.
The latest WASDE report was quite bullish for wheat with production cut by 9.3 million tonne across the major exporters including Ukraine, European Union, Canada and Australia (even though domestic conditions have improved over the last month). However, the biggest surprise to the market was the 3.8 million tonne taken off Russian production.
The USDA is forecasting 2019/20 production at 74.2 million tonne, down from 78 million tonne last month, but still higher than the 71.7 million tonne produced last season.
The total area to be harvested is forecast at 26.3 million hectares, representing an average yield of 2.82 tonne per hectare.
In line with the drastic production cut, the USDA lowered their 2019/20 wheat export estimate by 2.5 million tonne to 34.5 million tonne.
This is a year-on-year fall of 1.5 million tonne, with the USDA obviously expecting supplies to tighten this season.
The recent hot and dry weather hasn't been all bad for the Russian farmer, with protein levels boosted as a result of the hard finish.
Harvesting commenced in the southern wheat belt about three weeks ago, and protein levels in approximately 80 per cent of the deliveries made to date have been higher than 13 per cent.
That is four times greater than the long term average.
Higher protein wheat is highly sort after by global millers as it is linked to gluten, the component that makes bread dough strong and stretchy.
The challenge for the Russian farmer is extracting a better price for their high-quality product.
With an abundance of 12.5 per cent protein wheat available to the market at this early stage of harvest, the trade is very reluctant to pay a premium.
That is reflected in the current price spread between milling wheat and feed wheat, which has more than halved since harvest commenced, and the high protein trend became evident.
In late May, the premium being paid for 12.5 per cent protein wheat was more than $US12 a tonne. That is now down to under $US5/t, or even as low as parity in some regions.
Some growers are reportedly seeing protein levels as high as 16 per cent but are only being offered 12.5 per cent protein prices.
This is encouraging them to hold onto their highest quality wheat in the hope that overall Russian quality falls as harvest moves into the central and northern farming regions before finishing in Siberia in September.
Egypt is the world's biggest importer of wheat, and Russia is traditionally their primary supplier.
Egypt's state grain buyer, the General Authority for Supply Commodities (GASC) needs to purchase around 900,000t per month.
It was back in the market last week after booking just one cargo (60,000t) of Romanian wheat the week before.
GASC booked the top four offers on the tender lineup, for a total 240,000t, with Russia overlooked yet again.
The successful exporters were Romania with three cargoes and Ukraine with the fourth.
They paid $US198/t (free on board), a slight increase on the previous week's purchase, but under the price paid at the same time last year.
No doubt Russia will feature in the GASC tenders soon, given the size of their wheat crop and the exportable surplus that needs to start moving.
That said, the Egyptians would appear to be sending a subtle message to Russian exporters to sharpen their pencil if they want a piece of the action.
The Russian export lineup is reported to be around half of what it was this time last year.
Nevertheless, it is too early in the new crop marketing season for the Russian shippers to resort to discounting quality, particularly with production, and exportable surpluses, dropping in most of the major export origins, except for the US.