March 15, 2019 | Grain Hedge Insights | Kevin McNew | Views: 895

Global Wheat News Continues to be Bearish for U.S. Producer

Germany and Iraq wheat production to experience sharp year-over-year gains

Global Wheat News Continues to be Bearish for U.S. Producer

Germany and Iraq Wheat Production to Experience Sharp YoY Gains

Germany's 2019 wheat harvest will rise by 19.4% YoY and is estimated at 24.20 MMT.   

Germany is the European Union’s second largest wheat producer after France.

The German harvest in 2018 was sharply reduced by a drought but the mild winter has helped wheat crops after planted wheat acres were increased.

Iraq expects its wheat crop to almost double to 4-4.5 MMT this year after enhanced precipitation stimulated increased acres.  

The country produced around 2.17 MMT of wheat in 2018 and had expected to grow 3 MMT in 2019. But better rainfall provided more fertile land to grow the crop outside of the areas originally planned.  

What it means for U.S. Farmers: For the moment the global wheat news, albeit early, continues to be bearish for the U.S. producer.  The early season European weather and the hydrological configuration is ideal and the return to a normal production cycle after last year’s drought should put production back in the 5 year range.  The Iraqi production estimate can also be a net-negative for the U.S. export program as the political economy helps favor U.S. wheat exports.

U.S. Ethanol Exports to Brazil May Slow on Increased Corn Production

U.S. ethanol exporters are likely to face increased competition in the largest export market, the North and Northeast regions of Brazil.

Brazil is the top destination for U.S. ethanol. Exports to the country in 2018 reached 499 million gallons out of total exports of 1.37 billion gallons.

The competition would come in the form of corn-based ethanol common in the United States, not sugar-based ethanol that dominates in Brazil. Corn ethanol production is accelerating in Brazil's Mato Grosso, where corn production is expected to rise by 50% YoY.     

Corn ethanol production in Brazil is expected to grow to 1.4 billion liters in 2019 from 840 million liters in 2018. Most of that increase will come from three new projects in Mato Grosso, including a large plant in Sinop with capacity to produce 530 million liters per year when fully operational.

Logistics will play a major role as a major bridge and highway improvements are scheduled for completion this year.    

What it means for U.S. Farmers: Brazil’s increasing corn based ethanol production is an obvious negative for the export business.  With Brazil and U.S. trade representative set to meet next week to discuss agricultural trade items, including ethanol, there should be more immediate upside for the U.S. producer.                       
 

 

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