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Bleak crop prospects likely to keep spring wheat supplies tight, prices firm

The prevailing dry and hot weather conditions across top producing countries are limiting the production prospects for spring wheat, raising concerns of tightening global supplies for the high protein-content wheat.

Canada, Russia and the US are the world’s top producers and exporters of spring wheat globally, and all three countries have been witnessing severe dryness and drought-like conditions.

In Canada — the largest grower of spring wheat — extreme heat and drought conditions are having a devastating effect on wheat crops grown in the Prairies region, while the neighboring regions in the US are facing similar dry conditions, with major spring wheat producing states in the west the worst hit.

Parts of Russia are also experiencing dryness and rising temperatures, and analysts fear this could hurt spring wheat quality in the country.

The hard red spring wheat is considered to have the highest protein content of all the wheat varieties and is widely used for artisanal wheat products, and according to experts, extreme heat can affect its ideal protein levels.

Production outlook grim
Top producer Canada saw farmers moving to other crops from spring wheat this season, which resulted in a smaller acreage for spring wheat, the US Department of Agriculture’s latest World Grain Trade report said.

On top of the lower acreage, 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 decline 10.6% to 25.6 million mt, Agriculture and Agri Food Canada said in its latest report.

Similarly, prevailing dry conditions are casting a shadow over the prospects of spring wheat output in the US.

The USDA sees 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. Last year, the country produced 530 million bu of spring wheat.

In Russia, concerns lay ahead for the spring wheat as the crop is still in the development stage, said Victoria Sinitsyna, grains analyst at S&P Global Platts Analytics.

“Spring wheat is at a less advanced stage and grains are still developing,” she said. “The spring wheat yield can be affected by dryness in the Central and Volga districts.”

Platts Analytics is likely to maintain its estimate for Russia’s overall wheat output in the 2021-22 marketing year (July-June) at 83.6 million mt, including 20.6 million mt of spring wheat harvest, she said.

Russian agricultural consultancy SovEcon, however, has cut its forecast for the country’s wheat crop by 2.3 million mt to 82.3 million mt, while another consultancy, IKAR, reduced its projection to 81.5 million mt.

The USDA has has reduced its estimate for Russian spring wheat by 500,000 mt to 21 million mt.

Changing market share
As output by major producers shrinks, exports of spring wheat are also likely to tighten in the global markets.

Owing to the smaller output, Canada’s exports of spring wheat are expected to fall sharply in 2021-22 by around 16% year on year to 17.7 million mt, according to Agriculture and Agri Food Canada.

US exports of Hard Red Spring wheat are forecast at 220 million bu in the 2021-22 financial year, down 23% from 284 million bu in the previous financial year, according to the USDA.

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, according to the USDA.”As US and Canadian exportable supplies contract, importers seeking high-quality wheat are increasingly likely to shift toward Australia for additional supplies,” the USDA said recently.

The tightening supply situation for Canada and the US contrasts with the more ample supply situation for Australia, a close competitor in the Asian markets, the USDA said. Australian exports in 2021-22 are forecast to rise 13% year on year to 22 million mt.

The USDA said Australia may gain market share in Asia, while the US and Canada could dominate the western hemisphere.

Prices to remain high
“The smaller exportable supplies of durum and spring wheat from Canada and the US are likely to underpin high prices in 2021-22,” the USDA said.

With tightening supply of spring wheat, the average export price of Canadian wheat is likely to increase to C$285/mt in 2021-22 against the average of C$270/mt in 2020-21, Agriculture and Agri Food Canada said.

US spring wheat prices are also at multi-year highs. Spring wheat futures on the Chicago Board of Trade have been trading at their highest levels since November 2012. The September futures contract was trading at $9.05/bu on Aug. 2, down from a recent high of $9.45/bu seen earlier this month.

According to S&P Global Platts data, FOB prices of 12.5% protein Russian wheat increased to $253.75/mt on July 30 from $235/mt about two weeks earlier.

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