Wheat embraces bullish season amid tightening supply
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Wheat prices retreated on Tuesday after posting huge gains the previous week but market reports said prices are set to regain positive territory, underpinning high prices in the 2021/2022 session as top producers experience diminished production.
The most active wheat futures on the Chicago Board of Trade (CBOT) slid 0.8 percent at $7.23-1/2 a bushel, having closed up 3.7 percent a day earlier (Monday) when prices hit a May 13 high of $7.32 a bushel.
Analysts said persistent dry and hot weather conditions across Canada, Russia, and the U.S, the top producing and exporting countries are limiting the production prospects for spring wheat, raising concerns of tightening global supplies for the high protein-content wheat, indicating surging prices in the forthcoming trade sessions.
In Canada , the largest spring wheat producer, extreme heat and drought conditions are having a devastating effect on wheat crops, while the neighbouring regions in the US are facing similar dry conditions, with major spring wheat producing states in the west the worst hit. Similarly, parts of Russia are also experiencing dryness and rising temperatures, and analysts fear this could hurt spring wheat quality in the country.
Trade reports further stated that on top of the lower acreage by wheat farmers, dry weather weighed on crop yields, which is likely to drag spring wheat production estimates lower year on year.
Canada’s spring wheat output in the 2021-22 marketing year (August-July) is forecast to drop 10.6 percent to 25.6 million metric tonnes, Agriculture and Agri Food Canada said in its latest report.
The United States Department of Agriculture (USDA) reported the US’ 2021-22 marketing year (June-May) spring wheat output at a 33-year low of 305 million bushels (8.3 million mt) on the back of sharply lower yield estimates, a dismal figure compared to 530 million bushels produced last year.
SovEcon, a Russian agricultural consultancy, lowered its forecast for the country’s wheat crop by 2.3 million mt to 82.3 million mt, while IKAR, another consultancy,cut its projection to 81.5 million mt.
As output by major producers dwindles, analysts said exports of spring wheat are likely to tighten in the global markets. Canada’s exports of spring wheat are expected to decline in 2021-22 by around 16 per cent year on year to 17.7 million mt, according to Agriculture and Agri Food Canada.
The USDA noted that US exports of Hard Red Spring wheat are likely to decline at 220 million bushels in the 2021-22 financial year, down 23 percent from 284 million bushels recorded in the previous financial year.The agriculture agency further noted that this will lead to overall slower wheat exports from the US, with shipments forecast at 23.8 million mt in 2021-22 against 27.0 million mt last year.
As the U.S, Russian and Canadian exportable supplies contract, analysts observed that importers seeking high-quality wheat are increasingly likely to shift toward Australia for additional supplies. Unlike the tightening supply situation for Canada and the US, Australia has of recent, recorded ample supply and currently a major supplier in the Asian markets.
According to the USDA, Australian exports in 2021-22 are forecast to rise 13 percent year on year to 22 million metric tonnes and are set to offer stiff competition to the US, Russia and Canada.