The World Agricultural Supply and Demand Estimates report released recently by USDA sharply reduced world supplies that compete with U.S. soft red winter and soft white by reducing the EU-25 production forecast by 7 MMT. The reduced EU crop, short crops in the Black Sea region and other major exporting countries, and a huge increase in imports by India all tighten world supplies.
As a result, USDA forecasts a 24% (1.6 MMT) increase in exports of U.S. soft wheat classes this year even as total U.S. exports decline by 3.0 MMT because of very limited supplies of drought-reduced US hard red winter and hard red spring wheat classes, states U.S. Wheat Associates market analyst Joe Sowers.
Production problems in the EU-25 and Black Sea countries will decrease exportable supplies from those regions. Severe heat and drought last month in Europe cut yields significantly. "Untimely rains during harvest in Germany are further decreasing yield and quality there," Sowers writes.
EU-25 production is now forecast to be 119 MMT, down 3.4 MMT from 2005/06. Although weather in the Black Sea region, including Russia, Ukraine and Kazakhstan, has improved significantly in recent months, extreme winter weather following a dry fall already had reduced winter wheat in the region. USDA forecasts a 12 MMT production decline and a decline in exports of 22% (4 MMT).
Major exporters in the Southern Hemisphere are also experiencing poor crop weather. USDA forecasts a 12% (3 MMT) production decline in Australia as dry conditions have decreased planted acreage and are continuing to affect yields. Conditions in Argentina are also unfavorably dry with production forecast to fall 1 MMT below the 10-year average. Beneficial weather could still increase yields in the Southern Hemisphere where harvest is months away.
Reduced production is changing import patterns, Sowers says. USDA forecasts Indian imports to reach 4.5 MMT this year from nearly zero in 2005/06, making India the eighth largest importer in the world. The Egyptian import market, expected to remain the world's largest at 7.2 MMT, will be more competitive this year due to the lower production expected in the Black Sea and EU-25. In 2005/06 the EU-25 and Russia accounted for 56% of Egyptian imports. Brazil, the third largest importer in the world, is expected to increase purchases by 600,000 MT this year in anticipation of a short domestic harvest. With production down in Argentina, which typically accounts for nearly 90% of Brazilian imports, other exporters will have more access to South American markets.
Sowers adds while total U.S. production is down in 2006/07, U.S. SRW and SW supplies are plentiful in 2006/07. Carry-in supplies of these soft wheat classes are 22% (900,000 MT) higher than last year, and USDA estimates a 9% (1.6 MMT) increase in production of these two classes. A record 2.4 MMT harvest of soft red wheat in Ontario further increases North American soft wheat supplies.
According to the most recent commercial sales report, SRW sales are 44% (325,000 MT) and SW 35% (424,000 MT) ahead of last year's pace. Egypt has purchased 230,000 MT of SRW and SW this marketing year. Sales pace of SRW has also been much stronger in Mexico, Nigeria and Venezuela while the Philippines leads in SW at 399,000 MT, or 122,000 MT more than this time last year.