Heat wave causes Indian wheat crop forecast slump

The world was relying on India to fill the supply hole caused by the Ukraine war. The US Department of Agriculture had pegged in 8.5 million tonnes and 10mt of exports for 21/22 and 22/23 seasons, respectively. However, after heat wave conditions at the tail end of the Indian crop rabi season, we saw yields estimates retreat strongly. When combined with an increase in domestic consumption, the revised export forecast for the Indian 22/23 crop is now expected to be negligible. We are now seeing a new supply driven bullish phase while this news is being digested by the market.

Also driving this trend has been ongoing concerns attached to US winter crop conditions and late seeding of spring crops. Additionally, dry weather is starting to affect the European Union crop ahead of harvest and the 14-day forecast hasn't improved. Effectively, the world is relying on US and EU exports; any unexpected losses would push the market higher. The market will be closely watching EU weather over the next two months.

Generally, we see some seasonal weakness into June/July with lower import demand and increased supply from the NH harvest. However, with the ongoing Black-Sea conflict, US winter wheat drought, and concerns over dryness in the EU and heat waves in India, this seasonal pressure may be somewhat muted. Bull markets do need to be fed, so if weather improves in the EU/US before harvest, we could see some weakness.

This year is unlike anything we have seen before. We have a combination of events that will likely keep prices at extreme highs until the market finally gets relaxed about supply. Before the Ukraine war, major exporter stocks were already reaching record tight levels. The war then took out one of the major bread baskets of the world. La Nina is causing real concerns regarding northern hemisphere production and now India appears to have had a poor finish. We must remember that we are dealing with a staple food item. Consequently, further deterioration in forecast yields attached to any of the major exporters will result in volatility and higher prices.

In the short-term, the market awaits the upcoming May WASDE report on Friday, which will be this first 22/23 global wheat estimates from the USDA. From a local point of view, Aussie cash prices have been given an extra boost from plummeting $A which is currently testing 70c. 22/23 Basis is exceptionally weak (minus 230c/bu); if Australia has an above-average crop while we have extreme US wheat futures combined with a low $A we can expect basis to remain under significant pressure.