This week has seen the wheat market jump on cuts to Russian production, only to give most of the gains back as rains appeared in the forecast to stabilise the crop.

Various crop analysts started to ratchet the Russian crop back from 93mmt to today being somewhere around 81 – 83mmt due to the well established dry and frosty conditions through May. The same dry conditions were also seen taking a bite out of Ukrainian production with the UGA (Ukrainian Grains Association) publishing a 19.1mmt wheat crop – down nearly 1mmt from their previous estimate. As the week progressed however, rain appeared in the forecast, helping to alleviate some concerns around building temperatures.

The market was seeing rapid rises, passing through 700USc/bu in the spot month while the production estimates were seemingly being lowered on a daily basis. However, the bulls need feeding every day. As the news about lower production dried up, so did the momentum of the rally, eventually turning lower on profit taking and easing concerns.

India is also finding its way into the headlines. There have been rumours swirling for a while now that Indian wheat stockpiles are getting dangerously low, resulting in a spike in domestic prices. In a country with a high rural population, higher staple food prices are a dangerous mix –  especially in an election year. The Indian Government has moved to address any potential unrest by removing a 40% import tariff, effectively allowing the import of foreign wheat. It is assumed that once the various millers and traders have bought enough, the tariff will be reintroduced so as to find that balance between moderating high food prices, versus maintaining a profitable price for their wheat farmers.

The extra demand from India could be as much as 3-5mmt this year. Most is expected to be sourced from Russia, but the extra demand would be seen as tightening available stocks.

The US crop looks to be building after recent rains. While much of the headlines have been on the wild weather, storms and tornado’s, the rain that they have brought is adding bushels. Condition scores have dropped a few percent, reflecting too much rain in some of the SRW wheat areas and this is also leading to some seeding delays in corn and beans (at 83% and 67% complete respectively). Yield trends lower after mid May and there is some concern that these later sown crops will not reach their potential.

Next week

The dry WA and SA cropping areas finally received an opening rain this week which has seen basis deteriorate in cash prices. Much more is needed if Australia is to produce anything like the 29mmt forecast by the USDA.

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Click on graph to expand

Click on graph to expand

Data sources: SovEcon, USDA, Reuters, UGA, Next Level Grain Marketing, Mecardo

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