Hot, dry weather has been a theme being seen in a lot of places around the world these days. Strategie Grains recently cut their EU wheat production estimate by 4.7 million metric tonnes (MMT) to 127.7 MMT, the lowest since 2012. Most of the northern half of Europe have dealt with 40 degrees Celsius temperatures and limited rains for more than a few weeks now.
In eastern Europe, Poland’s wheat crop is looking like an 11 MMT crop (-5% YoY), Romania should harvest about 8.1 MMT (-6% YoY) and Czech farmers might only bring in 6.3 MMT (-8% YoY). Looking further east into the Black Sea, Russian farmers likely will combine 65 MMT of wheat this year, a far contrast to the record 85 MMT harvested last year. Ukraine is also expected to see a smaller wheat crop, down 1.5 MMT to 25.5 MMT. Thanks to Kazakhstan’s farmers planting the least amount of wheat in nearly 15 years, wheat production is expected to fall 5% YoY to 14 MMT.
Germany has been the hardest hit in Europe though as their winter wheat crop is expected to fall 20% year-over-year to 19.3 MMT, the lowest since 1994. the UK is forecasted to take off a 13.5 MMT wheat crop, which would be a 5-year low. Across the English Channel, France is looking like it’ll pull off a wheat crop of somewhere around 33 MT, down more than 5% year-over-year (YoY).
The French Ministry of Agriculture’s August crop production report showed smaller rapeseed crops as well, thanks to hot weather is weighing on yields. This contributed to a surge in MATIF rapeseed futures with the November 2018 contract in Paris making a new record high this past week. In terms of production, the French Ministry of Agriculture is expecting, EU rapeseed production is slated to drop by 11% or 2.33 MT year-over-year to in 19.68 MMT in 2018/19. This, despite the fact that EU’s seeded area to rapeseed where actually 1% higher year-over-year to 16.6 million acres.
Getting more granular, French rapeseed production estimate was left unchanged at 4.61 MMT, down 14% from 2017. Digging deeper, they are also expecting smaller rapeseed crops in Germany (down 19% year-over-year to 3.79 MMT) and Poland (down 28% year-over-year to 1.95 MMT). Comparably, major production increases are expected in Romania, up 9% year-over-year to 1.63 MMT and the UK, up 12% year-over-year to 2.14 MMT.
Coming back across the Atlantic, a quick glance at fall 2018 basis across Western Canada reveals that those areas that are the driest (southern Saskatchewan and Alberta) are starting to see basis improve. The average basis for the Canadian Prairies as of midweek was $34.12 CAD per MT under the November futures. However, we have seen some basis contracts made on the FarmLead Marketplace in south central Saskatchewan as high as $20 CAD per MT above the November contract. In other words, basis is getting positive/stronger as weather weighs on production concerns and buyers re bidding more aggressively to fill programs.
Ultimately, as the combines start to roll across Manitoba and the rest of the Canadian Prairies, the market is trying to equalize the current demand structure versus what looks like to be a smaller global wheat and rapeseed/canola crop.
Brennan Turner is the President & CEO of FarmLead.com, North America’s Grain Marketplace. He holds a degree in economics from Yale University and spent time on Wall Street in commodity trade and analysis before starting FarmLead. In 2017, Turner was named to Fast Company’s List of Most Creative People in Business. He is originally from Foam Lake, Sask. where his family started farming land nearly 100 years ago (and still do to this day).