Concerns grow over spring wheat and Southern Hemisphere crops

Starting with crops that are harvested early, we have spring wheat in the US and Canada. As production in the US is concentrated on the border with Canada (Montana, North Dakota and Minnesota account for approximately 76% of total American spring production), they generally share the same climate problems, and it has been no different this season.

As we can see in figure 3, the weather was very dry in North Dakota and Minnesota, which led to a deterioration in crop conditions in the latest USDA crop progress reports. At least for now, we can say that the drought has had a mixed impact on US spring wheat, as it has helped planting accelerate and reach the five-year average pace - normally, a late harvest has a negative impact on yields .

The current weather forecast also paints a mixed picture, as some regions of North Dakota are expected to receive a good amount of rain, while additional drought could be seen in some regions of Minnesota. However, crop conditions are already below the five-year average, so any further deterioration should be watched carefully.

In Canada, the situation is more worrying. The main producing regions of the provinces of Alberta and Saskatchewan (which account for about 78% of the country's spring wheat production) have seen low levels of precipitation over the past two months.

This has led to the worst soil moisture observed in these regions in the last 5 years and, unlike the USA, weather forecasts point to this scenario continuing in July. Consequently, lower yields will likely "offset" the increased acreage since 2001 in Canada, so we expect a cut of about 2M mt in current USDA estimates.

Smallest area in Argentina and Australia with low soil moisture

For the main exporters in the Southern Hemisphere, the situation is not much better. Although Argentina and Australia are still planting their 23/24 crops, the weather is already affecting their crop prospects.

In Argentina, the dry weather observed in May drastically reduced planted area estimates, which are now close to last season's figures. The Rosario Stock Exchange's current estimate is now almost 1M lower than the USDA's. Due to the bad weather observed so far and the not so encouraging forecasts, it is expected that the yield will also be lower than what is currently estimated by the American agency.

In Australia, the prospect is already of a much smaller harvest due to the impact of El Niño in the country during the crop development stages. But drought has also been observed in kangaroo lands, reducing soil moisture even before an effective El Niño. The ABARES estimate is already 2,8M tonnes lower than the USDA's.

Conclusion

Although the last WASDE brought a very bearish scenario for wheat in the 23/24 harvest, recent events in the spring crops in North America and in the main exporters in the Southern Hemisphere will likely change this scenario.

Considering only current estimates from local agencies, we expect a reduction of more than 7 million tons in global production, leading to a much tighter scenario for global ending stocks than predicted by the USDA in the last WASDE.