USDA cut its Russian wheat crop estimate by 0.5 mmt to 76.5 mmt in the July WASDE report. The forecast obviously could and will change but it looks like current figures have reflected all negative factors for the Russian crop.
First, yields keep improving. Starting average yield was only 3 tons per hectare (45 bu/ac) which was almost 30% below the previous year. Now after Russian farmers have harvested around 20% of the areas it’s 3.4 tons which is only 10% below the previous year. And we expect that trend to continue – at the end of the campaign yield should be ABOVE the previous year. So, minus 30% at the beginning, -10% now and probably above 2019 at the end. This is quite an uncommon pattern. At the beginning farmers were harvesting worst fields in the South which suffered a lot after dry spring and late frosts, later wheat which is being harvested now suffered less.
Additionally, the harvesting campaign now expands to the Volga Valley and the Center which we expect to harvest bumper crops this year. Indeed, yields in the Center are slightly above the previous good year, while in the Volga they are more than 60% higher. The Volga valley is the largest wheat grower after the South in terms of area planting around 7.5 mln ha.
Second, USDA and many forecasters in our underestimate the wheat. We believe that USDA’s figure could be 0.7 million hectares below the actual area. Perhaps it doesn’t sound like a lot but this could convert into around 2 million tons of wheat.
That sounds bearish for Russian wheat but there is also a bullish story. We are getting more and more concerned about spring wheat yield, especially in Urals and Siberia. Too dry, too hot, and no proper precipitation in the forecast.
We will be watching how the harvest campaign evolves and updating our forecast. The most recent one is 79.7 mmt.
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