The wheat market is focusing its attention on the next winter wheat crop, and conditions overseas look for the most part to be good.
StoneX market analyst Will Rutherford-Roberts said forecasts calling for a moderate weather event in La Nina in the last quarter of 2021 bode well for Western Europe.
This will likely result in slightly above normal humidity for northern France and Germany and slightly below average for southern and central France.
Subsoil moisture levels are good at the end of the summer growing season in most wheat growing areas of Western Europe due to normal to above normal rains.
With wheat prices on the MATIF exchange at their highest levels since 2012-13 and tight supplies in major exporting countries, European farmers are likely to plant a lot of wheat.
Rutherford-Roberts forecasts 65.46 million acres in the EU and UK, the biggest harvest in six years.
La Nina could cause drought in eastern and southern Ukraine, but the country has experienced a wet summer and has good moisture reserves ahead of the planting season.
The Ukrainian government is forecasting 16.55 million acres, a 10 percent increase from levels last year.
Russia is the only major winter wheat producing region where farmers could cut last year’s record plantings.
Forecasts point to dry conditions in southern Russia, which could lead to settlement and development problems.
Farmers may also be reluctant to grow wheat due to high fertilizer prices and punitive government policies.
“Given the current levels of government intervention in the form of export taxes, current expectations are that the Russian plantation area is expected to decrease for the 2022-2023 season,” he said.
Rutherford-Roberts said that in addition to the export tax, there was talk of implementing an export quota later in the 2021-22 crop year to control commodity price inflation food.
MarketsFarm analyst Bruce Burnett doubts this will happen.
“I had heard rumors about it but I don’t know if (a quota) is going to be necessary,” he said.
This is because the pace of Russian exports has been slow this year due to the tax, which has made Russian wheat less competitive in foreign markets.
But he noted that the government has used quotas in the past, so this is not out of the question.
“If the quotas did happen, it would be a boost to the wheat market,” Burnett said.
Rutherford-Roberts said this will push demand to the EU, but he believes the EU would struggle to meet that demand due to serious quality issues with this year’s crops in France and parts of Germany.
Importers from Saudi Arabia, Algeria and China have already reduced their specific weight requirements to allow French wheat to be competitive in these markets.
Burnett said this is a pretty good indication of how tight global wheat stocks have become in major export markets.
“Buyers say, ‘OK, you can’t provide it. What can you provide and I buy it? ” ” he said.
But he noted that a very large harvest of Australian wheat is underway and what appears to be a reasonable harvest in Argentina as well. This will help alleviate some of the supply issues.
Both analysts said the wheat market would ignite if there were weather problems in major winter wheat producing areas.
Burnett said it will likely take two years to bring the wheat market back to balance, as demand has been very strong despite high prices.
“We need to produce more wheat,” he said.
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