Wheat: Is Anyone Else Getting Deja Vu?

06/06/13 -- The overnight Globex grains are mostly lower, with beans down 7-8 cents on old crop and flat to 2 cents easier on new crop. Wheat is mostly 1-2 cents weaker as is corn.

Wheat is holding up surprisingly well under the circumstances, with the harvest underway in the US and only a month off in the Black Sea region. Whilst the US wheat crop is going to be down in 2013 due to adverse weather conditions for winter wheat development and for spring wheat planting, that isn't the case everywhere else, and it's important of course to see where this wheat might be.

Using the USDA's latest estimates, out of the top ten exporting nations in 2013/14 only the US and India aren't looking at higher production this year versus last year. US wheat production is forecast down 5.8 MMT this year, with new arrival in the wheat exporting Premier League, India, facing a modest 2.9 MMT lower wheat crop this year (their 24 MMT carryover stocks from 2012/13 are so large that this is a drop in the ocean anyway). That equates to 8.7 MMT less wheat from these two (bear in mind here that America's carryover stocks from 2012/13 are currently forecast at a not insignificant 20 MMT also).

Now let's have a quick glance at the other teams in the Premier League (ranked in order of exporting size):

In second place behind the US we have Canada, after a delayed start to planting their crop is now said to be largely developing quite well. Production seen at a record 29 MMT, up 1.8 MMT on last year, primarily due to a sharp increase in plantings.

In third we have perennial dark horses Russia, a rebound in yields from last season's disaster has their crop projected 18.3 MMT higher this year.

Fourth place in the wheat exporting Premier League is tied between us, Europe, and our ex convict cousins Down Under. Whilst EU wheat crops this year are a mixed bag, production overall is seen 6.8 MMT higher this season, recovering somewhat from last season's poor performance. Rains appear to have arrived just in time for Australian wheat to get off to a decent start, so the USDA's forecast of a crop of 24.5 MMT looks achievable (Lanworth said 24.8 MMT yesterday and ABARES currently say 24.9 MMT), up 2.5 MMT on last year.

The world's sixth top exporter in 2013/14 is expected to be Ukraine, where crops also look pretty decent by all accounts, who are set to weigh in with a crop of 22 MMT, according to the USDA, some 6.3 MMT more than a year ago.

In seventh slot is India, we've covered them already. Eighth is Kazakhstan, who are expecting a crop of 15 MMT this year, up 5.2 MMT on 2012. Ninth is Argentina, with production of 13 MMT, up 2 MMT, and tenth is Turkey - they've had decent rains across the winter (Laurie White will tell you that, he was there a month or so back and it pissed it down every day, didn't it Laurie??!!) and are expecting a crop of 17.6 MMT, up 2.1 MMT versus 2012.

If you dig your calculator out you will find that these other eight top exporting nations have an extra 45 MMT of wheat between them to market in 2013/14, which is a darn sight more than America and India's 8.7 MMT less - and both these two countries have large carryover stocks from 2012/13 anyway.

Incidentally, when we get this afternoon's USDA weekly export data from the US we will know exactly what volume of outstanding 2012/13 US wheat sales never got shipped, thereby increasing the carryin to 2013/14 even higher than the USDA's current 20 MMT estimate.

Most crucially of all Russia, Ukraine and Kazakhstan are all facing sharply higher wheat production this year, just as they did in 2011/12 following the infamous drought year of 2010. You may recall that London wheat shat it's pants to the tune of capitulating to GBP140/tonne and Paris wheat to EUR180/tonne in Q4 of 2011 as this little trio (Primark, Matalan and TKMaxx as I call them) urinated all over the market, running around mopping up any order that was going. And that was in the days back when Egypt was in the market every week too.

Don't worry, history never repeats itself -Tim Henman