London Wheat Higher, Supported By Defra Production Estimate
"A significant decline in planted area was not able to offset a partial recovery in yield. Dry and warm weather during the summer allowed crops to compensate to some extent for a difficult growing season, but performance across the regions was variable," they said.
With UK wheat imports seen more than halving to 1.4 MMT, total availability in 2013/14 is seen down 11% to 15.7 MMT, despite the high level of carry-in from last season. Domestic wheat consumption in 2013/14 will be interesting. They forecast that at 13.8 MMT, with demand from the animal feed sector falling by more than 1 MT, or 15%, to 5.8 MMT. They left demand from the Human and Industrial sector almost unchanged from last year, saying: "Conservative bioethanol (usage) forecasts have been included as although both plants expect to operate during the season, activity during the first quarter has been limited."
It's possible that they are under-estimating the demand side of the coin, even with large volumes of imported corn already lined up to be shipped into the UK in 2013/14 and barley priced at a substantial discount to wheat.
The HGCA's Jack Watts, speaking at their Outlook Conference today, was noted to have said via Twitter that "the rebound in UK wheat quality in 2013 makes the crop much more usable and shifts any supply concern into the feed wheat market." This probably explains the strength being displayed by London wheat relative to the French and US markets recently. It also tells us why domestic milling wheat premiums are so low.
Russian growers have managed to plant 10.5 million hectares of winter grains, less than two thirds of the original target and 3.8 million fewer than this time a year ago. Ukraine has planted 6 million hectares of winter grains (73% of the aim) versus 7.2 million a year ago. Wheat accounts for the majority of that at just over 5 million hectares (76% of plan). In addition to a lower than expected planted area, there must also be question marks over the short period of development time left to these late planted crops to establish themselves before the harsh Russian/Ukraine winter sets in, as well as noting the far from ideal soil conditions into which many of these crops have been sown.
The 2013 Black Sea harvest rumbles slowly on meanwhile. Russia has harvested 84.2 MMT of grains off 86.3% of the planned area, including 51.2 MMT of wheat off 90.4% of plan. Ukraine has harvested 44.5 MMT of grains (off 81% of the planted area). The corn harvest there stands at 11.36 MMT off 41% of the planned area. The Kazakh harvest is at almost 20 MMT off 95.7% of plan. All these volumes are in bunker weight, but are still well up on year ago levels.
Strong demand from Brazil is underpinning the US wheat market. South America's largest wheat buyer imported 589 TMT of wheat in September, and 492 TMT of it came from the US. Their own wheat crop is in trouble again this year, so neighbouring Argentina's harvest can't come soon enough. Old crop stocks in the latter are so tight though that domestic Argentine prices are said to be double those internationally, and there's now talk of Argentine millers requesting the government to limit wheat exports in 2013/14 to 2-3 MMT to help replenish pipeline stocks. There's a mid-term election there looming on October 27 as well.
There's talk that China has been buying US wheat lately too, but no official confirmation of course due to the US shutdown. Cumulative US wheat export sales were already running at 69% of the USDA forecast for 2013/14, versus the 5 year average of 47%, prior to the October 1 government shutdown. There's now also talk of dryness problems in Chinese winter wheat areas.
There's an air of optimism that a deal, even if a relatively short-term one, could be done to resolve the US debt ceiling/budget impasse within the next 24-48 hours. If one does go through then there could be a slew of data to come from the USDA, which could mean some significant price movements in the grains sector in the coming days/next week.
Even if they chose to sit on the October WASDE report that should have been released last Friday, they should have all the information about them to release details of export sales and shipment volumes almost straight away. Might we even get a crop conditions/harvest progress report on Monday night?