This time last week, the freshly-inked grain corridor deal had seen wheat prices tumble. The last week in May in particular was quite brutal in commodities as crude oil slipped below US$75/barrel, wheat dipped below $6/bushel and economic headwinds created concerns that the worst was yet to come. Fortunately, since June ticked over, we have seen some stability return to the market.

A combination of bargain buying and weather has really helped the wheat prices in the last couple of days.  As we are on the doorstep of the Northern Hemisphere harvest, some extreme weather events have thrown some question marks up over supply and demand.


Firstly China.  It has been a country of extremes in the past couple of weeks.  It recently made headlines by recording the hottest temperatures recorded in several centuries in its long history. More recently, heavy rains in northern Hubei and Anhui, as well as the central province of Henan (which has recorded 300% of its monthly rainfall), have fallen just as the wheat crop is about to be harvested.  Henan accounts for more than a quarter of Chinese wheat output.


Some estimates have Chinese wheat losses of 20mmt out of a total estimated production of 137mmt.  With more rain forecast, there are mounting concerns over sprouting and mould/mycotoxins that could make wheat unusable for human consumption.  Given China’s supposed vast reserves of wheat (some estimates suggest 54% of the global surplus is held inside China), they could blend off poor quality wheat to make a suitable quality for feed if not milling.  This event spells trouble for countries banking on China for corn imports.  It is, however, a positive for wheat prices if China needs to import more milling wheat to cover its losses.


There is a saying along the lines of “There is nothing like rain to ruin a good drought”.   This might apply to the super dry US Plains that are now being hammered with rain.  This will help the winter wheat that hadn’t been written off to now produce something salvageable. There are areas however, where damage has already been done and farmers will now be faced with the tough decision of hoping it will make something profitable or do they roll the dice and replant a summer crop like sorghum or a short-season corn.  In the southern Hard Red Winter (HRW) areas like the Texas panhandle where harvest has started, concerns are mounting over quality.


Lastly, it wouldn’t be a weekly market comment without mentioning Russia.  Even though the ink is still drying on the grain initiative deal, there are concerns that Russia isn’t complying with the spirit of the new deal.  Allegedly Russian inspectors are delaying inspections and holding up the entry and departure of any vessels.  There are some 50 vessels lined up in Turkish waters awaiting inspection to be loaded in Ukrainian ports.

Next week

The Chinese story could be just enough to move the needle on wheat prices.  We know global stocks to use are getting tighter, so anything that increases global demand should be positive for price.  The balance will be if corn stocks weigh too heavily on the feed/food complex

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Click on graph to expand

Click on graph to expand

Data sources: Reuter, USDA, World Ag Weather, Next Level Grain Marketing, Mecardo

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