Northern Hemisphere harvest estimates start to level

Stability in Black Sea wheat production stymies price rally

All eyes are on the northern hemisphere harvest progress, grain stock levels and sales to determine where prices might go in Australia.

All eyes are on the northern hemisphere harvest progress, grain stock levels and sales to determine where prices might go in Australia.


Reports Black Sea wheat production has stabilised have led to more certainty for global traders.


Harvest of this season's Black Sea winter crop is progressing well and grain yields are steadily improving as headers move north.

But hot and extremely dry weather across Siberia - and the neighboring cropping regions of Kazakhstan - in the past six weeks has fuelled concerns that spring wheat yields will be lower than forecast.

The Ministry of Agriculture of the Russian Federation reported last week that the wheat harvest there had reached 35.3 million tonnes.

This is in-line with the quantity of grain reaped at the same time last year, but the area covered is greater because crop yields to date have been lower year-on-year.

The first areas to be harvested in Russia are the southern reaches of the Southern Federal District, which lie between the Caspian Sea and the Caucasus Mountains.

This area was affected most by late frosts and an extremely dry spring, and the crops suffered accordingly.

Early wheat yields came in at only about three tonnes per hectare, which was about 30 per cent below last year's levels.

Yields in the highly fertile Kuban district, which is in the north west of the Southern Region - bordering the Sea of Azov - have fared much better.

Harvest in that area has finished and wheat yields averaged just over 4.9t/ha. This was still 10 per cent lower than in 2019, and was the lowest average yield for the district since 2012.

Consequently, with more than 40 per cent of the Russian wheat harvest complete, the average wheat yield now stands at about 3.5t/ha.

The upward trend is expected to continue as harvest moves into the Central District and Volga Valley, both of which are forecast to have bumper harvests.

The red flag for Russian wheat production has now turned to Siberia, the country's biggest spring wheat growing region.

The crop was planted into moisture and got off to a reasonable start. But late June and July have been hot and dry.

Soil moisture levels are now very poor in this region, and spring wheat production forecasts will continue to fall in the absence of substantial rainfall during the next few weeks.

Traditionally, the early Russian wheat yields set the harvest high - and the trend is then downward. But this season is panning-out to be the opposite.

Despite the poor start - and the spring wheat issues - it is highly possible that this season's average wheat yield could get close to that of last year's harvest.

Due to a bigger planted area, final production should comfortably exceed the 73.6 million tonnes produced in the 2019 campaign.

Yield forecasts for the Russian crop appear to have stabilised, with recent downgrades reflecting the negative seasonal factors.

The International Grains Council released its latest world wheat numbers last week and cut Russian wheat production estimates by 1 million tonnes to 78 million tonnes.

This compares to:

  • the most recent United States Department of Agriculture (USDA) estimate of 76.5 million tonnes;
  • the Institute for Agricultural Market Studies (IKAR) forecast figure of 78 million tonnes - up 1.5 million tonnes this week; and
  • SovEcon's updated estimate of 79.7 million tonnes - down from 80.9 million tonnes.

Similarly to Siberia, wheat production in Kazakhstan is on the slide due to current soil moisture reserves being inadequate to finish the crop.

The US Agricultural Attaché in Kazakhstan is now calling wheat production there at 11.8 million tonnes, which is down 700,000 tonnes from its previous estimate and 1.7 million tonnes lower than the most recent USDA forecast.

Export forecasts for Kazakhstan for the 2020-21 marketing year have also been revised down by 900,000 tonnes to 6.2 million tonnes.

Ukraine's 2020 grain harvest is now 38 per cent complete and total grain production is expected to be 9.5 per cent below last year's record-breaking haul due to unfavourable weather conditions in the Odessa and Crimea regions.

Ukraine has harvested 12.8 million tonnes of wheat so far this summer and total production is expected to be about 24.7 million tonnes, according to the US Foreign Agricultural Service.

This is a fall of 15 per cent compared to the 2019-20 harvest and is 1.8 million tonnes lower than the July USDA estimate. Wheat stocks at July 1 were reported to be at a 10-year low of 1.8 million tonnes.

Interestingly, Egypt purchased 115,000 tonnes of Ukrainian wheat for late August delivery at its most recent tender - after purchasing the same quantity from Russian exporters the previous week for mid-August delivery.

Last week's result reflects a lack of grower selling in Russia. The farmers there simply do not want to give up the world's cheapest wheat amidst increasing crop uncertainty - and the trade doesn't want to extend shorts against a stubborn seller.

Russia has been busy courting Brazil, with 70,000 tonnes of wheat loaded out in July and more on the books. This compares to sales of 90,000 tonnes for the entire 2019-20 marketing year.

Russian wheat exports for July are forecast to be as low as 2.2 million tonnes, compared to almost 4 million tonnes in the same period last year.

Nearby Black Sea wheat prices started last week lower, but rallied by the back end to be quoted unchanged at about US$208-211/t free on board (FOB) for 12.5 per cent protein.

Prices were US$4/t lower for 11.5 per cent protein and feed wheat was US$4/t lower again.

But cost and freight sales during the week seem to reflect much lower values, unless sea freight rates are easing.

Current market carries would put January FOB values about US$12/t higher.

Prices out of the Black Sea have rallied by about 7 per cent this month, despite the pressure of new crop harvest supply.

Exporters with short positions in the FOB market have been trying to buy in cover, pushing prices higher.

New crop Australian export values firmed slightly across the week.

Western Australian values were up by a couple of dollars (per tonne) and Kwinana Australian Premium White (APW) wheat was quoted at about US$239/t FOB.

South Australia rallied by about US$5/t, with Port Adelaide quoted at US$238/t FOB and Melbourne/Geelong was unchanged at a slightly lower quote of US$236/t FOB.

Lower protein Australian Standard White (ASW) wheat is trading at about US$10-15/t lower, depending on the load port.

At these price relativities, Australian wheat is currently 'in the money' into traditional South East Asian markets.

Two conflicting questions remain.

The first being - when will the weight of new crop volume and export competition loosen the Russian farmer's grip on wheat stocks and pressure Black Sea values lower?

Or, secondly, will smaller surpluses among the major global wheat exporters hold prices firm as we move into the southern hemisphere spring?


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