Market Insider

Combines Roll on Smaller Wheat Crop

To start the month of August, grain markets ended the week mostly in the green as the full attention of the market is on what yield monitors are showing in combines that are already rolling, and the potential for the remaining crop as it nears the finish line of a challenging growing season. Ongoing concerns of smaller wheat supplies in North America and Russia are feeding the bullish speculators as we saw funds increase their long positions in all 3 wheat exchanges this past week!

On Thursday, August 12th, we’ll get the USDA’s next monthly WASDE report and expectations are that corn yields will be lowered slightly from the July estimate of 179.5 bu/ac, and, despite the drought conditions in northern states, we could still see a record average national yield. Meanwhile, soybean yields are expected to stay at 50.8 bu/ac as the USDA usually doesn’t touch soybean yields until the September WASDE.

Specifically for the wheat, I expect to see downgrades for the U.S., Canadian, and Russian wheat production and export numbers but likely some higher numbers for Europe and maybe even Australia as paddocks across the country continent continuing to receive beneficial rains. In Europe though, late July rains have had a negative effect on some fields, prompting the German farmer’s association to cut their wheat harvest estimate by 2 MMT, while the French Ag Ministry dropped their forecast by 500,000 MT (AKA 2.5 MMT less wheat total between these 2 countries). The late rains could also, be detrimental to the quality of this year’s harvest in the region, but it’s a bit too early to make a call on that yet.

Last week, the USDA said in their weekly crop progress report that just 10% of U.S. spring wheat crop is in good-to-excellent (G/E), condition, which is the lowest rating for this time of year since the 1988 drought! Conversely, nearly 2/3s of the U.S. spring wheat crop is in poor-to-very poor (P/VP) condition. The U.S. durum crop is in a little bit better shape with 37% rated G/E, but another 44% of it is considered P/VP. Across the border in Manitoba, about 50% of the spring wheat crop has a good-to-excellent rating as of last week and combines are rolling there, as well as in Saskatchewan and Alberta.

As the yield monitors turn on and spit out what’s actually in the field, downstream in the supply chain, millers and bakers are trying to figure out how much high protein spring wheat they really need versus blending in some lower protein product. Regardless, expectations are that prices for bread and other wheat-based products will rise 5% - 15% this year, and we’re already starting to see those moves in places like Russia and Canada.

On a global level, given the expensive reality of a smaller Northern American wheat crop, China and other Asian importers are likely to buy less U.S. and Canadian wheat in the 2021/22 crop year. Instead, they’ll likely look to Australia’s northern and eastern regions (where their high protein wheat is mainly produced) or the Black Sea’s spring wheat crop, albeit, the latter’s wheat’s milling characteristics is nowhere near that of North American spring wheat. That said, we finished the 2020/21 crop marketing year very strong as export data from the Canadian Grain Commission showed durum shipments up 15% year-over-year while non-durum Canadian wheat exports were up nearly 9% compared to 2019/20. It’s worth noting that, despite shipments slowing in July 2021, both CP and CN rail shipped a record amount of grain this year.

Finally, as you get your combine into the field this year, given the hot, dry conditions, please remember to have a fire plan for both equipment and field fires that all your farming teammates know backwards and forwards. Be it a water truck or discer in the field or ensuring every fire extinguisher on your equipment is functional and filled, we can’t afford to let our guard drop at this time of year, especially when fire conditions are elevated. Please ensure you add these jobs to your list of to-dos this harvest season as having a plan is better than no plan at all.

To growth,

Brennan Turner