The inherent uncertainty around weather conditions remains a major risk to global wheat production in the foreseeable future. Whether one looks at Europe, North America or Southern Africa, there are increasing reports of drier weather conditions.

If dryness persists for a prolonged period, it could threaten wheat yields and, in turn, lead to a downward revision of the optimistic 2020/21 global wheat production outlook of a record 768 million tons, as currently forecast by the United States Department of Agriculture (USDA).

Dry weather conditions taking its toll

Over the past week, Romania, Russia and Ukraine, among others, saw their 2020/21 wheat production forecasts revised down because of expected poor yields in some spring wheat-growing regions. What’s more, the United Kingdom (UK), France, Belgium, the Netherlands and parts of Germany are also among the European regions currently experiencing inadequate moisture.

The same is true for the United States (US), where analysts now have some doubts that the USDA wheat yields forecast will materialise, if there aren’t sufficient rains in the coming days or weeks. We now look to the USDA’s crop conditions report, which will release the results of crop conditions for the week of 24 May 2020, on Tuesday.

In the week of 17 May, roughly 52% of the US’s winter wheat was rated good or excellent, which is slightly behind the 66% rating for the corresponding day in the previous year. To a certain extent, this shows the impact of dryness in some regions of the US wheat industry.

For a broader update of the 2020/21 global wheat production estimates, we look to the USDA’s World Agricultural Supply and Demand Estimates report, which will be released on 11 June.

In the meantime, various crop forecasts from governments and analysts suggest that the USDA might have to revise down the optimistic estimate of a record 768 million tons in the next release. The magnitude of such revisions, however, will largely depend on the weather conditions in the coming weeks.

Planting activity hampered in South Africa

In Southern Africa, there aren’t many major wheat producers, with South Africa being the only major producer in the region. The winter wheat planting activity in the country commenced at the start of April and will continue until the end of this month or first week of June, which is when the optimal planting window closes.

By the week of 24 May, nearly two-thirds of the estimated 495 000 hectares for the 2020/21 season had been planted. Various regions of the major wheat-producing province, the Western Cape, experienced persistent dryness, which somewhat slowed the planting activity. Moreover, the aforementioned intended planting area for the 2020/21 wheat season is down 8% from the previous season.

South Africa’s Crop Estimates Committee will release its first winter wheat production forecast on 27 August. It is only then that we will have a sense of how large the 2020/21 wheat crop could be. The preliminary estimates from the International Grains Council (IGC) paint an optimistic picture of a 22% increase year-on-year in South Africa’s 2020/21 wheat production, to 1,8 million tons.

While it is still too early to make a concrete judgement, we doubt whether this will materialise under the expected area plantings and dryness. Perhaps the IGC took a leaf from the South African Weather Service in drafting the underlying assumptions for this estimate.

Rainfall expected in the Western Cape

On 30 April, the local weather bureau estimated an increased chance of above-normal rainfall in the south-western regions of South Africa, which includes the Western Cape, between May and August.

So far, the forecast rainfall hasn’t materialised. However, the rainfall forecast for this week promises widespread showers over most regions of the Western Cape, which could be a welcome relief and conducive for the planting activity currently underway.

No real signs of potential wheat shortages

In a nutshell, the weather remains a major risk that requires constant monitoring in the global wheat market. This means, while the fears about lower global wheat supplies have eased following the release of the 768 million tons production estimate for the 2020/21 season, a lot will depend on weather conditions in the coming weeks.

With that said, we still think there is neither a need for panic, nor for major wheat-producing countries to reconsider the restrictive trade policies they intended to implement at the start of the pandemic, when they feared wheat shortages.

The current weather forecast only suggests that global production might not be as large as initially expected, but there are no signs of potential shortages. – Wandile Sihlobo, Agbiz

Wandile Sihlobo, chief economist at Agbiz, shares highlights in his update on agricultural commodity markets. Click here for the full report on agricultural markets for the major commodities.

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