USDA Downgrade Wheat Estimate 3m tonnes to 53m tonnes in Russia

The USDA downgraded its estimate for the wheat harvest in Russia by 3.0m tonnes to 53.0m tonnes, citing the "hot and dry weather" in European parts of the country which sent world prices soaring last month. The USDA lowered its estimate for this season's carryout inventories by 2.3m tonnes to 185.8m tonnes, a four-year low but, with a stocks-to-use ratio of 27.2%, still comfortable by historical standards.

The USDA, in monthly crop revisions, also cut 300,000 tonnes from its estimates for the US crop, saying "continued dry conditions in Colorado and Nebraska resulted in lower forecasted yields", and downgraded the Turkish harvest to a five-year low of 16.5m tonnes, citing expectations of "well-below-average" yields.

"Persistent dryness and excessive heat during April and most of May hampered vegetative growth for winter wheat in Russia's Southern District, which accounts for about half of the country's winter wheat output," the USDA said.

"The April heat was likely more detrimental to potential yield than was the extended dryness, because the high temperatures essentially brought an end to the development of additional productive tillers, or stems, and secondary roots."

Conditions have been "poor in parts of the southern Central District as well", the department added, if adding that "yield prospects could improve with favourable weather".

A winter characterised by heavy snow, late frost, hail, and a "widespread outbreak of snow mould" had caught out growers who had planted less hardy varieties of wheat this year.

The USDA also lowered by 1.0m tonnes to a five-year low of 131.0m tonnes its estimate for the European Union crop, the world's biggest.

"Largely unfavourable conditions have existed in central Europe for much of the growing season with dryness in autumn, frost damage during winter, and early spring dryness."

While raising its estimate for the wheat yield in Germany, the EU's second-ranked producer, in line with revived hopes voiced by other analysts, the USDA cut its forecast for the country's harvest to 21.8m tonnes, citing lower expectations for harvested area.

Crop tours by USDA officials in central Europe last month "observed dry soils, short plants, low tiller counts, and small grain heads".

Coupled with a smaller estimate for inventories at the close of the 2011-12 season, newly-finished in many countries, the downgraded combined to cut world wheat supplies by 7.0m tonnes heading into the new marketing year.

However, the impact on stocks at the close of 2012-13 was mitigated somewhat by lower forecasts for consumption of the grain, as it is replaced by corn in livestock feed rations.

The stocks-to-use ratio, in indicating the level of competition needed to secure supplies, is viewed as a key pricing tool.

Chicago wheat, the world benchmark, closed 2.2% lower at $6.16 ½ a bushel, for the benchmark July contract.

Heat, rather than dryness, has been the enemy of Russian wheat, while European prospects are being depressed by "dry soils, short plants and small grain heads", US officials said, as they cut 7.0m tonnes from their estimates for world supplies.