USDA Cuts Global Wheat Production Estimate to 729.63 mil mt for 2018-19

(S&P Global) – The US Department of Agriculture projected global wheat production at 729.63 million mt at the end of the 2018-2019 marketing year, down 28.39 million mt from the 2017-2018 estimate and 6.63 million mt lower from its prior forecast for the period.

The estimated decrease in global wheat production was primarily due to the lowest EU wheat production estimate since 2012/13. Continued drought conditions in several northern European countries, most notably Germany, resulted in lower production by 7.5 million mt to 137.5 million mt, the report released late Friday said.

The production cuts were not as steep as the market had expected, resulting in a plunge in the most liquid US CBOT December futures contract by 17 cents/bushel, closing at 569.50 cents/bushel on Friday.

However, Russia’s wheat production increased by 1 million mt to 68 million mt on continued favorable condition for spring wheat.

The USDA projected lower global wheat trade, mainly on reduced EU exports, which are down to the lowest in six years at 23 million. Russia is projected to remain the leading world wheat exporter for the second consecutive year, with exports pegged at 35 million mt.

“Global imports are lowered for several countries with the largest reduction for Algeria,” the USDA said.

Projected 2018/19 world consumption is 5.1 million mt lower, primarily on reduced feed use in the EU and Russia, the report said.

Meanwhile, USDA kept the Australian wheat production unchanged at 22 million mt, which is higher than the anticipated figure by many market participants.

Results released on August 3 from a survey conducted by INTL FCStone showed Australian wheat production estimates averaged at 18.77 million mt, down 1.5 million mt month on month.

The drought in eastern Australia, where majority of the domestic demand in concentrated, has led to buyers scrambling for cargoes. Despite rising bids pushing up domestic prices for new crop, farmers in Australia preferred to sell only small quantities due to production uncertainty for the 2018/19 marketing year.

The strong domestic market coupled with tight supply of old crop has pushed up Australian wheat export prices significantly. S&P Global Platts assessed APW at $278/mt FOB Australia Friday, up sharply by $30/mt month on month.