The United States Department of Agriculture (USDA) published its August World Agricultural Supply and Demands Estimates (WASDE) report on Thursday and presented some bullish surprises. Futures markets reacted with notable gains and US, Paris and London wheat futures all rallied to set new contract highs.

Having taken an overly conservative view of potential crop losses in its July estimates, this time the USDA made some aggressive production cuts. This was particularly the case for Russia where the USDA estimates the wheat crop will be as low as 72.5 million tonnes. This compares with its July estimate of 85 million tonnes. Earlier this week, the Institute for Agricultural Market Studies (IKAR) lowered its production estimate to 77 million tonnes, reflecting poorer than expected yields.

Notable production losses are also seen as a result of the drought that has ravaged Canada; the USDA sees Canadian production falling to 24 million tonnes, compared to its previous July estimate of 31.5 million tonnes. In contrast, both Ukraine and Australia are seen producing larger crops than estimated in July at 33 million tonnes (up 3 million tonnes) and 30 million tonnes (up 1.5 million tonnes) respectively.

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