- The halting of Indian wheat exports is a political decision but also confirms that the recent lengthy period of extreme heat has trimmed wheat yields significantly. Similar weather has plagued areas of Pakistan and Bangladesh, and a major retooling of WASDE’s South Asian wheat trade flows lies ahead. Recall USDA last week pegged 2022/23 Indian exports at a record large 8.5 million mt. Pakistan is forecast to import just 1.5 million mt, vs. 1.9 last year.
- Our work would suggest that India will not be a net exporter and Pakistan’s import needs are likely to jump to 3-5 million mt. This reflects an 11-13 million mt swing in supplies in that region relative to the USDA’s current estimates. This is a big deal, and it remains that wheat markets worldwide must work to destroy some measure of global consumption this year while also working to encourage meaningful winter wheat acreage expansion this autumn. Wheat’s supply issue cannot be fixed in just one crop year. As such, it is very difficult to bearish of corn and other feed grains even assuming normal Jun-Aug Midwest weather.
- HEADLINES: Spot Chicago/KC wheat locked limit up; Frost possible in S Brazil; Planting progress awaited.
- Chicago ag futures have sustained overnight bullish momentum, with spot KC/Chicago wheat futures locked limit up following India’s banning of wheat exports, and as weather will continue to threaten winter wheat yields across the US Southern Plains and in Western Europe. There will be corrections in wheat, but increasingly our work suggests solving current global wheat supplies issues will be impossible without outright demand destruction. Breaks of 30-40 cents are buying opportunities and we note that importer demand still hasn’t returned in bulk. Market focus has been cantered on supply so far, but it is the collision of supply loss/demand that will trigger a new sustain price plateau in global corn, wheat and oilseed markets.
- Brazilian corn futures are sharply higher this morning, partially in tandem with the US market but also due to yet more threats to safrinha yield there. Seasonal dryness will be ongoing in Mato Grosso and Goias, while an elevated risk of frost is causing concern in Parana. Minimum low temperatures in Southern Brazil this week will drop into the upper 30s. The safrinha crop in Parana will be subject to frost-based yield loss into the early part of June. Brazilian corn for Sep delivery this morning is quoted at $8.34/bu. Importantly, Brazilian corn is again offered at a premium to the US market in harvest positions, and the Brazilian futures market moving forward will be the best indicator of production, supply and demand.
- Paris milling wheat at midday is up €20.50/mt ($0.60/bu). European and Canadian rapeseed markets are up sharpy. Unfortunately, there just nowhere for end users/importers to turn to for alternative supply, which makes the rationing chore ahead all the more difficult.
- US weekly export inspections were below expectations in corn, but at/above expectations in soy and wheat. Corn shipments through the week ending May 12 totalled 41 million bu, vs. 58 million the previous week. Wheat inspections were 13 million bu, vs. 10 million the previous week. Soybean exports were a sizable 29 million bu, vs. 19 million the prior week and a 4-week high.
- For their respective crop years to the date, the US has shipped 1,539 million bu of corn, down 17% from last year, 1,782 million bu of soybeans, down 14%, and 712 million bu of wheat, down 20%. Official Census US corn exports will continue to outpace FGIS data by a wide margin amid record Canadian demand. Weekly soybean inspections must average only 18 million bu to reach the USDA’s updated US soybean export forecast, which will be easily obtainable given ongoing sales of old crop US beans to China and others. We maintain a final 2021/22 US soybean export projection of 2,200 million bu, 40 million bu above USDA. Overall, China will remain active in extending soy coverage on breaks.
- The midday GFS weather forecast is drier in the principal Midwest next week but wetter in ND and MN. The GFS forecast is slightly further north with a low-pressure trough aloft southeast Canada. Additional excessive rainfall will be largely isolated to the N Plains and NW Midwest, and the midday GFS forecast is in better alignment with EU and Canadian model output. Key will be planting progress last week and through this Tues/Wed, as efforts will be challenged again beginning Thursday. Our primary concern remains centred on ND/MN, where seeding has just begun.
- Otherwise, extreme heat and a lack of precipitation this week will allow for additional drought expansion/intensification across the Southern and Western Plains.
- Debate is ongoing with respect to the monthly pace of Russian wheat exports beginning in mid-summer when the current export quota is lifted. But it is clear wheat markets are more concerned with the abrupt end to India’s wheat export program in the context of falling North American and EU production potential. The fundamental outlook stays bullish, and it is just tough to be bearish of corn/soy, even amid normal weather, as wheat looks to ration supply and searches for N Hemisphere acreage expansion. Corrections provide opportunities for end users.