Wheat has been looking to trade lower for the past month, led primarily by managed money wanting to believe that wheat is the weakest link in the agricultural commodities. However, tight stocks and the spectre of supply interruptions mean pricing sentiment is particularly sensitive.

Russia has been at the forefront of wheat news in the past week.  Firstly, a statement from Moscow suggested that it was considering limiting its wheat and sunflower oil exports.  To an outsider, this doesn’t make any sense.  Official estimates have Russia producing an enormous 104mmt wheat crop.  Why would they be wanting to place an export ban on a crop that will have significant carryover?


Shortly after, the Kremlin clarified their statement, suggesting the announcement was more about making sure the global price (which they are dictating) is maintained at a level above which the Russian farmer remains profitable.  That nominal figure is US$275/t, equivalent to roughly AU$410/t (FOB).  This effectively means there is now a floor in place.  Recent tenders saw Russian wheat offered at around US$285/t, perhaps suggesting a slightly higher floor price is already being tested.


Wednesday night, the wheat market exploded out of the blocks on the news that agricultural powerhouses, Cargill and Viterra, would cease exporting wheat out of Russia.  It didn’t take long for cool heads to prevail.  It appears that Cargill is simply stepping away from its elevation assets in Russia (the assumption is Viterra is doing the same) but with an expectation that the companies would still be originating and trading grain from the region.  What is not clear is if the move was directed by pressure from the Russian Government or from within their walls.  The changes are due to come into effect July 1st, coincidentally around the time the 60-day grain corridor agreement is up for review.


The US Hard Red Winter (HRW) wheat area is also supporting the market.  Kansas is rated at 19% good to excellent, which is well below average. Furthermore, little to no meaningful rain is forecast for the area in the next 7 days.  The price spread between Kansas (hard wheat) and Chicago (soft wheat) is now at a record-wide position, a reflection of how poor conditions are in the US Plains.  The weather market window is now open, and the market will respond to any forecast that either threatens or supports production.  Farmers in the US Northern Plains and Corn Belt will be also anxiously waiting for deep snow to melt and that the corresponding flooding will quickly dissipate to allow fieldwork.

Next week

All eyes will be on this week’s USDA stocks and acreage report.  This will give us a first glimpse of sowing intentions, with early bets already suggesting a 7% increase in wheat area and a slight increase in corn at the expense of soybean acres.

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Data sources:  Reuters, USDA, CRM Agri, Next Level Grain Marketing, Mecardo

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