Further cuts to Southern Hemisphere wheat production lie ahead, and ARC’s thesis is that, overall, the US market will boost its share of world trade significantly beyond the Sep-Nov quarter. 30-day % of normal rainfall in Argentina and Australia is displayed at left, major wheat producing areas are highlighted, and the two countries have experienced vastly different growing conditions thus far. Too much rain has fallen in Argentina, with some 250-280% of normal rain recorded in Buenos Aires since mid-August. Australia remains plagued by drought and the entirety of New South Wales and Queensland have seen virtually no moisture in the last 30 days.
Fortunately, a relatively drier pattern lies ahead in Argentina, though already acreage cuts of 150-500,000 Hectares are being discussed. And only regional rainfall is offered to Australia in the next two weeks, centered on W. Australia, while drought will worsen in NSW.
Assuming weather to date, and the current two-week forecast, AgResource has lowered Aussie wheat production to 20.9 MMTs, vs. ABARES 21.6 estimate last week. Further losses are possible should dryness persist into the middle part of October. Argentine production is pegged at 16.5 MMTs, vs. USDA’s 17.5, based mostly on lost harvested area. Total Southern Hemisphere wheat production is then calculated at 38 MMTs, down 2 from the USDA, and those is a fairly average harvest, it’s down a massive 13 MMTs (25%) from last year’s record. Keep in mind that a vast majority of wheat produced in Argentina and Australia enters the world market, and with global wheat trade to be near unchanged in 2017/18, additional tons will find the US Gulf market once Black Sea shipments slow seasonally during the winter months.
Australian cash wheat prices already are rationing supplies – wheat in NSW is some of the most expensive of the major exporting countries. Instead of shipping early harvested crop abroad, it’s most likely that surpluses in South Australia and Victoria move northward to fill supply gaps in NSW and Queensland. Argentina stores little to no wheat in any given year, and so reduced production will directly impact its exportable surplus. ARC projects S Hemisphere wheat exports in 17/18 at 27 MMTs, vs. the USDA’s 30 and vs. a record 35.2 MMTs last year. Some 50-75 Mil Bu of lost S Hemisphere exports will find the US Gulf market in Jan-May – or upwards of 75-100 Mil if complete dryness persist in Eastern Australia.
There’s no shortage of world globally, but we advise against selling breaks as the US looks to capture a multi-year high share of world trade.
