World wheat production in the 2017/18 marketing year is pointing to shrinkage that would mainly take place at the most relevant exporting countries and will have a significant effect on stocks. The International Grain Council’s estimates of the table below shows that major exporters will be producing 8% less wheat in 2017/18 versus previous year. The biggest falls are seen in Australia and the United States, while there could be a rise in the European Union wheat output.
Added to the above, US snowstorms on late April that were followed by cold temperatures and strong winds may have damaged hard winter wheat in different areas of the states of Kansas, Colorado and Nebraska, although the extension of the damage is yet to be seen. At the same time, some areas of Canada remain too damp to move forward with field work, and there is much uncertainty as to whether the entire area of intent could effectively be seeded, and whether the yield potential will not be affected.
With regard to South America, IGC predicts that while Argentina will increase its planted area to 5.7 million hectares, based on the positive margins for producers and the abundant soil moisture, in Brazil the seeded area could fall to a minimum in five years. The latter could, in turn, favor Argentina’s shipments next crop year, though we still have a long way to go before determining the available export surplus.
In our country, sowing is advancing at a steady pace where soil conditions allow it and the planting advance reaches 40% of the area of intention at this date. Nonetheless, even when gross producing margins support wheat production, excessive soil moisture may impose a limit to area growth for the new season. The maps below show a comparison of useful groundwater at June 1st this year, comparatively with the year before, and it can be seen that soil moisture excesses are still widespread at the south of Santa Fe and northwest of Buenos Aires.
In relation to corn, two points stand out for the analysis: the huge amount of grain that is expected to be shipped from Argentina’s terminal ports in the next three months, and the global prospects of less supply and more demand for the next crop season.
Argentina's FOB basis for corn has recently become very competitive in the international market, as shown in the chart below. Added to this, we still have a large export surplus which, as we have mentioned on previous occasions, could easily reach 23 or 24 million tons. Good prices and adequate supplies will definitely boost the activity in the coming weeks.
Looking ahead to the next crop season, the market is already trying to discount the expected drop in supply for the 2017/18 marketing year, just when demand is called to reach a record high. In addition, excessive soil moisture in the United States has boosted uncertainty; on Monday, USDA reported the worst condition for corn at the beginning of the crop year of the last 4 seasons. As a result, the unfavorable price relationship between maize and soybeans we had witnessed a few months ago has changed; therefore, the soy to corn ratio fell 10% in the last two months.
At present, everything indicates that Argentine corn will be coveted in the world in the coming months. Local businesses echo these rumors and there is a great variety of bid values to originate grain in the next twelve months. It is very interesting to compare the range of open offers for deferred delivery of wheat and corn at this point in 2015 with those we are observing today at Rosario’s cash grain market. It is quite clear that cereals have returned to the podium.