Russia’s Wheat Crop: Friend or Foe?
Russia’s Wheat Crop: Friend or Foe?
This could be an interesting year for the U.S. wheat balance sheet. Some form of this thought typically is present this time of year as the growing season ramps up and weather concerns appear across the Northern Hemisphere. The U.S. is considered to be a residual exporter, overall. In other words, when most other countries have exhausted their exports, buyers come to the U.S. FBN assumes that exporters will ship most of their surplus in a given crop year as long as comfortable stocks levels are maintained.
This is where Russia comes into play. The country now typically takes the crown as being one of the top two wheat exporters, with the U.S. in third place. Russia’s domestic use total has fallen between 40 and 43 million tonnes in recent years. The limited range helps with forecasting export potential for Russia without a significant amount of variation unless driven by production swings, which brings us to the next point.
Changes to Russia’s production result in significant changes to exports
Russia’s record export year was 2017/18. That year, the country exported 41.4 million tonnes — 13.6 million more than the previous year. 2017/18 also was a record production year at 85 million tonnes. As the chart above shows, when Russia’s export share changes, the EU and U.S. generally endure changes, with Canada and Ukraine having only modest share disruptions.
Russia is estimated to have planted a record amount of winter wheat for this year’s harvest. Winter wheat accounts for about two-thirds of Russia’s total wheat production, with spring wheat making up the remainder. Winter wheat harvest gets going in late June/early July with moisture key in the coming weeks. Overall, the current situation is drier than normal. While the winter wheat crop has time to react positively to moisture, analysts in the market have come off production expectations. While a crop in the low 80s previously was expected, the market now is leaning for harvest closer to 77 million tonnes.
FBN is not forecasting Russia’s production total, but wants you to understand how a change in a few million tonnes in production can result in a significant change to Russia’s exports, thus impacting other exporters. For instance, take scenario 2020/21a. Here, we assume Russia cuts 80 million tonnes of wheat, which allows for exports to be near 39 million tonnes. But for scenario 2020/21c, where the crop is assumed to total 72 million tonnes, exports drop to 32.5 million tonnes. That opens the door for other exporters to fill the gap for global trade. For instance, at a 77 million tonne crop, FBN sees U.S. exports at possibly 1 billion bushels (27.2 million tonnes). But at a 72 million tonne crop for Russia, U.S. exports could be upwards of 1.1 billion bushels (around 30 million tonnes). In other words, that is the difference between a U.S. ending stocks total in the 800s versus one in the 700s.
Why is this particularly important this year?
Well, the EU faced significant planting delays last fall with France, the largest EU exporter, estimated to have its lowest planted area total in over a decade. That sets the stage for smaller export possibilities for the EU. Now, Russia could have a crop that hits below 80 million tonnes. That situation also adds to the probability that more export business could come to the U.S.
What this means for the U.S. farmer
We know France has lower planted area but we do not know if Russia will be able to make an 80-million-tonne crop. Right now, FBN is confident that unless the moisture situation is above normal for Russia in the coming weeks, nearby futures can maintain around current levels. If Russia loses tonnage, that will benefit the U.S. export program. But if Russia is able to cut 80+ million tonnes, the U.S. ending stocks total would probably remain burdensome overall.
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