Canada Markets

The World Wheat Crop Will be Smaller, But...

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The blue bars on this chart represent USDA's global wheat production estimate, ending with their June forecast of 744.7 million metric tons. The orange bar represents the AMIS Market Monitor July estimate of 736.1 mmt, while the green bar represents the International Grains Council's July estimate of 936.8 mmt. While global production estimates are being scaled back in 2018, current estimates suggest only a modest change. The black line represents USDA's ending stocks estimates. (DTN graphic by Cliff Jamieson)

Winter wheat prices gapped higher Thursday, ending the session with a second consecutive double-digit move higher. Both September hard red winter and September soft red winter are poised to finish higher over the week for the first time in six weeks, while have already formed bullish outside week reversal bars on their respective weekly charts, although this can only be confirmed with Friday's close.

Concerns surrounding production shortfalls in areas such as France, Germany and southern Russia are on the radar, while DTN forecasts point to a drier trend for the northern spring-wheat-growing states and a warmer, drier pattern appears in the forecasts for most of the Canadian prairies.

Major global forecasters are calling for the first decline in global wheat production in six years for the 2018/19 crop year. The most recent was on July 5 when the AMIS Market Monitor reported a month-over-month revision lower in their global forecast to 736.1 million metric tons, down 18 mmt from last month and 20.7 mmt from their 2017/18 estimate, while accounting for lower production expected for China, the EU, the Russian Federation and Ukraine. July's report shows Saskatchewan on the watch list, along with eastern Australia, while conditions in Alberta, Manitoba and the U.S. spring wheat growing area are viewed as favourable.

What stands out on the accompanying chart is that despite these concerns, the most recent estimates (USDA will make revisions on July 12) are pointing to a less-than-3% reduction in global production expected in 2018/19, which does not jump off the page. The most recent estimates are only slightly lower than the five-year average calculated from USDA data, while is well above the 10-year average. The last three bars on the right of the chart represent USDA's June estimate (blue bar), Thursday's AMIS estimate (orange bar) and the IGC's July estimate (green bar).

Another factor to consider, as pointed out by DTN Analyst Todd Hultman, is that both Chicago and Kansas City wheat prices tend to peak in early July. The current move is counter to the seasonal trend, and there may not be enough bullish news to sustain the move. In June, USDA estimated global ending stocks at 266.2 mmt for 2018/19, which is still the second highest on record and well above the five-year average of 237.7 mmt. There is a great deal of growing season yet and many more forecasts to come. But, so far, most recent data suggests there will be more than ample supplies available ahead.

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

Follow him on Twitter @Cliff Jamieson

(AG)

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