Canada Markets

The current challenges faced in the U.S. wheat crop, including the late planting of the spring wheat crop and the drought-affected winter wheat crop which has ratings declining by the week, are being largely ignored by the market.

Wheat continues in its sideways-trading pattern, as report after report suggests a rebound in global wheat production -- enough to offset any losses in the North American crop.

The World Agriculture Supply and Demand Estimates (WASDE) report, released by the USDA on May 10 reported 2013/14 projected global production to reach 701.1 million metric tonnes, up 6.9% from the 2012/13 estimate of 655.64 mmt. Global ending stocks are also forecast to rebound, rising 3.4% to 186.38 mmt. The market obviously finds it difficult to be concerned with global supplies due to this rebound and increase in the stocks/use ratio to 26.8%.

The May 31 release from the International Grains Council (IGC) paints a similar picture as the USDA, although its forecast is more conservative. The IGC's forecast for 2013/14 production calls for global production of 682 mmt, up from last year's 655 mmt. Its carry-out forecast calls for a carry-out of 180 mmt.

The largest single production gain in any one producing country on a volume basis as seen in the WASDE report is to take place in Russia, with a projected increase of 18.28 mmt, or 48.5%, to reach 56 mmt. The WASDE report forecast sees ending stocks growing 18.5% to reach 6.42 mmt in 2013/14.

The ICG's projection is more conservative, with a projection of 52 mmt production as opposed to the USDA's 56 mmt, exports of 13.9 mmt as opposed to the USDA's 18 mmt, and carryout stocks of 9 mmt, as opposed to the USDA's 6.42 mmt. The largest impact to the global wheat market is WASDE's projection of a sharp 68.2% increase in exports, from 10.7 mmt to 18 mmt.

Regardless, traders have hung their hat on current projections which see an easing of last year's crop concerns, while the ICG states, "Although there is continued uncertainty about harvest prospects in some major producers, global wheat availabilities are still set to be ample over the year ahead."

The attached chart shows the significant gains in production achieved in Russia's wheat crop since the year 2000, while also highlights the extreme variability seen in production since 2009/10. 2010/11 saw a reduction in production of 32.8% from the previous year, or 20.26 mmt.

The 2012/13 estimates currently reflect a 32.9% reduction from the previous year, or an 18.52 mmt drop. Current projections for 2013/14 reflect an 18.28 mmt recovery, which represents a 48.5% increase. According to USDA's projections, Russia's share of the global wheat trade will rise from 7.8% in 2012/13 to 12.6% in 2013/14. At the same time, Canada's share is viewed to fall slightly from 13.5% in 2012/13 to 12.9% in 2013/14. Projections also have the U.S. share falling from 20.3% in 2012/13 to 17.5% in 2013/14.

Eyes will remain focused on this area of the world for signs of adverse weather and resulting revisions to production, given the country's recent history of erratic weather and wild-swings in production. The June 4 International Crop and Weather Highlights from the USDA suggests that recent rainfall and cooling has provided relief to the red winter crop in areas of southwestern Russia, while some areas continue to deal with stress from both heat and dryness. Dry weather in eastern Russia is also said to be benefitting the spring wheat crop.

Not only is the Russian crop a key issue for the wheat market in 2013/14, but will undoubtedly influence the market for years to come. In recent weeks, a United Nations economist with the Food and Agriculture division (FAO) reported that by 2021, Russia could become the world's largest exporter of wheat, displacing the United States. Russia's exports are suggested to be close to 25 mmt by this time, which compares to the current USDA forecast of 27.9 mmt for the U.S. in 2012/13.

Cliff Jamieson can be reached at cliff.jamieson@telventdtn.com

(AG)

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