PARIS MILLING WHEAT, CAN THE SHORT DELIVER?
This year’s global wheat harvest looked to be on track to produce 1.66% more wheat than the previous year, with the May21 USDA WASDE forecasting 2021/2022 wheat production to hit a record 788.98 million metric tonnes, with global consumption marginally lower than this at 788.68 were set to produce a very small surplus.
The situation has changed somewhat with the Sept21 WASDE now forecasting 2021/22 production at 780.28 mmt, with consumption forecast at 789.63 mmt we are set to produce a deficit. This leaves us with a forecasted carryout stock of 283.22 mmt, 3.8% smaller than expected in May (Chart 1).
Whilst a production deficit and smaller ending stocks are supportive to wheat prices, this alone does not explain the levels we are seeing, especially in that of the Euronext milling wheat contracts.
Chart 1: Global Wheat Ending Stocks
50.000 100.000 150.000 200.000 250.000 300.000 350.000
.000 Source: USDA Chart 2: Global Wheat Ending Stocks
If we consider the European Union in isolation, production has rebounded from a pretty dismal 2020/21, with the Sept21 USDA WASDE estimating a 2021/22 all wheat crop at 139 million metric tonnes (10.37% higher than 125.94 estimated in 2020/21). Based on these production volumes alone, we would expect the Euronext milling wheat contract to have come under pressure. The below Euronext milling wheat December seasonality chart, looking at the last 5 years, shows us that this isn’t the case (Chart 2).
There are a number of factors driving price direction, including the drought in Canada, poor US spring wheat harvest results and smaller wheat yields in Russia. But the main factor driving Euronext milling wheat? Wheat quality, especially in France (the EU’s biggest wheat growers and one of the world’s biggest exporters of milling wheat).
The latest French harvest survey (FranceAgriMer), with 90% of the soft wheat samples targeted and some results outstanding from a rain delayed harvest in northern France, points to a pretty poor crop in terms of quality. Test weights are low, with only 32% hitting the 76 kg/hl level (last year 98% of the crop exceeded the 76 kg.
Whilst the quality issues were mostly apparent in France they were not confined to this region with low test weights also seen in Germany, Poland and Baltic countries. Strategie Grains recently revised down 2021/22 soft wheat production in the EU27 to 129.1 MMT and expect as much as 40% of the crop not to be suitable for milling (compared with 27% in 2020/21).
Source: Thomson Reuters
The Euronext milling wheat contract settles in physical delivery, with all of the delivery points located in France (Rouen, Dunkirk, La Pallice and Nantes-Montoir). That considered, the quality of the French crop is of particular importance. Contract specification in Chart 3.
10 | ADMISI - The Ghost In The Machine | Q3 Edition 2021
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