Sep 8 / Alef Dias

Grains, Oilseeds and Livestock Weekly Report - 2023 09 08

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"In Argentina, recent rains in the central and eastern agricultural regions improved hydric conditions slightly. However, the overall crop situation remains challenging. The western Pampas areas still suffer from moisture deficiency, jeopardizing yields as the prime growing period approaches. 
Australia continues to suffer with persistent drought conditions since July. Limited rainfall in August exacerbated the situation, except for some areas in Western Australia. Weather forecasts predict below-average rainfall for the next 15 days. Consequently, ABARES revised wheat production estimates down by 800k mt tons to 25.4M mt, 3.6M mt less than the USDA's current estimate.
The world's stock/use ratio is already at its lowest level since 2014/2015, and the situation in the Southern Hemisphere will likely add to this tightness. However, speculative funds keep increasing their short positions, making it uncertain when and if these fundamentals will be priced."

Wheat: Updates on Southern Hemisphere crops

As harvest of spring crops in the Northern Hemisphere advances, our focus turns even more to Southern Hemisphere, as crops in Argentina and Australia enter their critical development months.
Even with the severe decline in Australia’s output due to the El Niño and the “not-so-great” recovery of Argentina’s crop, these countries still rank among the top exporters and combined they will be responsible for around 15% of global exports according to USDA’s current estimates.
Consequently, impacts on their crops remain relevant to the world’s wheat supply and demand balance, so this report aims to discuss the recent developments in Argentina’s and Australia’s crop
Fig. 1: Argentina Wheat Production, Area and Yield (M mt, M ha, mt/ha)

Source: USDA, Bolsa de Cereales (*)

Fig. 2: Australia Wheat Production, Exports and Yields (M mt, mt/ha)

Source: USDA, ABARES(*):


In Argentina, it can be said that the crop situation has slightly improved in the past few weeks, but it doesn’t mean that there’s no room for cuts in the current USDA’s estimate.
The recent rains recorded over the center and east of the agricultural area produced an increase in hydric conditions. Adequate/Optimal conditions went up by 5.3 p.p., leaving behind the same levels of 22/23.
Nonetheless, the overall situation of the crop remains challenging. Good and excellent crop conditions remain at the same level seen last year (18%) and most crop areas of the western half of the Pampas are still suffering from overall lack of moisture, warranting attention.
Crops in these regions are in great need of more water supply, which must be provided immediately to avoid significant yield reduction, as they enter the prime growing season early September.
As it is shown in Figure 4, it doesn’t seem to be the case for the next 15-days, as most of the country is expected to witness below-average precipitation levels.
Given this scenario, the current yield estimated by the USDA seems too optimistic and it will likely be adjusted in the coming months. The Buenos Aires Exchange current estimate released this week sits at 16.5M mt, but should this dry scenario for September be confirmed, even this number may be at risk.
Fig. 1: Argentina Wheat Production, Area and Yield (M mt, M ha, mt/ha)

Source: Bolsa de Cereales

Fig. 2: Australia Wheat Production, Exports and Yields (M mt, mt/ha)

Source: World AgWeather


As it was mentioned in the report of August 18th, when it come to the largest exporters of wheat, Australia is probably the most affected by the El Niño, and crop conditions at that time weren’t great at all – and the situation hasn’t changed much since then.
Drought-like conditions have endured across Australia since the start of July. While there were minor rain showers in early to mid-August, arid circumstances have resurfaced in the last fortnight (with the exception to some regions in Western Australia). Weather forecasts are anticipating below-average rainfall for the next 15 days in top producing regions.
Consequently, the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) downgraded its estimates for wheat production by 800k tons to 25.4M mt. The number is 3.6M mt lower than the currently estimated by the USDA.

Fig 5: 15-day forecast precipitation – Australia (% of normal)

Source: World AgWeather (Wheat production shown inset)

Fig. 6: World Ending Stocks and Stock/Use – Wheat (M mt)

Source: USDA


In general, wheat crops in both Argentina and Australia are suffering with challenging weather in the past few months, which has been hindering the yield potential in both countries. Looking at the difference between local exchanges and agencies estimates vs the USDA, there’s room for an additional 4M mt cut to world supplies.
The world stock/use ratio is already at the lowest level since 14/15, so that’s another bullish risk on the radar, but it’s hard to tell when and if market participants will consider those risks at all, as speculative funds keep increasing their net short positions.
Nonetheless, should any of the bullish risks (lower production in the Southern Hemisphere, India importing relevant amounts, disruptions in the Black Sea grains flow, etc.) trigger a correction in wheat prices, short covering moves can happen, leading to a greater volatility in wheat markets.

Weekly Report — Grains and Oilseeds

Written by Alef Dias
Reviewed by Victor Arduin


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