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It has been a relatively benign week in the wheat market. Some of the risk premium that had built up over Middle East concerns has dissipated at the time of writing. This has been most evident in the price of crude oil which briefly peaked at US$92/barrel but has now retraced to US$82/barrel.

The dip in wheat prices has spurred some interest with the usual suspects issuing import tenders. The US was again reminded of how uncompetitive it is when over 1mmt was offered up, predominantly from Eastern Europe and the Black Sea for a routine tender. The rise in the USD against a basket of currencies has made US commodities more expensive and is seen as hurting their export program.

Last week, the USDA received some flack for overstating the potential of the Argentinean corn crop. This week, the USDA attache in Argentina has made the relevant cuts. At 51mmt, the estimate is much closer to the Argentine national analyst’s (CONAB) view the crop is 50mmt. There is a view that this estimate may be trimmed further as damage caused by insects and an insect bourne disease is taken into account. These cuts to production are happening at a time of low global prices for both corn and soy. Combined, export revenue has been cut by $4.5 billion according to the Rosario Grain Exchange.

The cut in corn production was also reflected by the IGC’s release of its April world production report. The report also demonstrated that the world’s farmers are sowing fewer wheat acres with the value of the crop falling below the cost of production in some areas but also a switch to higher value crops, particularly in Ukraine.

Russian weather has become decidedly drier in the past month. The key area to watch is the Southern region, east of the Crimea. This area is critical as it funnels directly into the export channels on the Black Sea. While the crop remains in good condition, the recent warm weather and lack of rain could quickly see estimates reduced were this pattern to continue for the next month.  The high levels of carryover stock in Russia will shield their export program in the face of falling production, however, any cuts to production in the Black Sea will be supportive for prices.

Next week

Weather and geopolitics remain the drivers for price direction. The funds (managed money) remain heavily short/sold and seem reluctant to change their position in CBOT. The same can’t be said in MATIF where the short position is being unwound resulting in rallying Europe-an futures.

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Data sources: USDA, Bloomberg, Refinitiv, SovEcon, IGC, CONAB

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