Jan 22 / Alef Dias

Grains, Oilseeds and Livestock Weekly Report -2024 01 22

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Wheat: Prospects for the 24/25 EU crop

  • With a start to the harvest characterized by delayed planting in France and Germany, which probably resulted in a decrease in the planted area in both countries, the projections for total production in the continent are now more positive compared to the estimates made two months ago.

  • Still, the 24/25 harvest in the European Union is expected to be 2M mt smaller than the current crop, intensifying the pressure on the global balance. As a result, European wheat, which has been facing intense competition from Russian wheat in recent crops, tends to maintain its less competitive position in the 24/25 marketing year.
  • In addition, the decrease in European production so far does not seem to have the potential to exert significant upward pressure on wheat futures contracts. However, productivity is still subject to substantial variations until the continent's harvest starts.

Introduction

After a start of the crop marked by delayed planting in France and Germany, which probably led to a reduction in the planted area in both countries, the market is beginning to analyze what impact this smaller area will have on total EU production.
This impact, as well as other relevant factors, will be analyzed in the present report to provide an overview of the EU's 24/25 wheat crop and address other issues relevant to the European market.
Fig. 1: Crop progress - Soft wheat France (% of estimated area)

Source: France AgriMer

Fig. 2: Crop Conditions - Soft Wheat France

Source: France AgriMer

The smaller area should be significant, but less relevant than initially anticipated

In our last report on the 24/25 European harvest (click here to access), the first unofficial estimates pointed to a possible 8M mt reduction in the continent's total production.

At the start of the crop, there were already expectations of a reduction in EU's planted area, mainly due to the low prices, but the heavy rains in November led to a significant delay in planting, leading to an even greater reduction.

About two months later, with the harvest progressing, and greater clarity about the total impact on the acreage and the crop situation in other countries, it is understood that this impact will likely be smaller.

Considering a drop of around 10% in the planted areas of Germany and France, and a lower yield in the latter, the next crop should be around 2M mt smaller than the 23/24 harvest. This is due to the fact that yields in the rest of the continent should be higher, reducing the impact of the smaller planted area.
Fig. 3: EU wheat - Area, yield and production (M ha, mt/ha, M mt) 

Source: USDA. *hEDGEpoint estimate

Now the focus is on productivity

With more clarity on the impact on the planted area, productivity is the main factor to watch over the coming months. In terms of temperature, there are not many indications of a deterioration in the European harvest at the moment.

Virtually the entire continent is expected to see above-average temperatures over the next few days, and even if this scenario changes, snow cover in several producing countries is above the average of the last 15 years.

In terms of rainfall, the scenario is more worrying. Despite heavy rainfall at the start of the harvest, soil moisture in several of the main producing countries is below the average of recent years. However, forecasts point to a change in this scenario in the coming days.
Fig. 4: Soil moisture (% within top 1 meter) - Germany

Source: Refinitiv

Fig. 5: Rainfall forecast for the next 15 days

Source: NOAA, hEDGEpoint

In summary

After a start of the crop marked by delayed planting in France and Germany, which probably led to a reduction in the area planted in both countries, total production estimates for the continent are more optimistic than they were two months ago.

Still, the 24/25 crop in the EU is still expected to be 2M mt smaller than the current crop, putting more pressure on the global balance. As a result, European wheat, which has already suffered from competition with Russian wheat in recent crops is likely to remain less competitive in 24/25.

In addition, this reduction in European production does not - so far - appear to be capable of bringing significant upward pressure to wheat futures contracts. However, productivity is still subject to strong variations until the harvest starts.
Fig. 6: Cumulative EU soft wheat exports (M mt)

Source: European Commission

Weekly Report — Grains and Oilseeds

Written by Alef Dias
Reviewed by Pedro Schicchi
[email protected]
www.hedgepointglobal.com

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