Sun shining on wheat

In the past couple of trading sessions, the wheat market has pulled back after reaching new season highs. The war in Ukraine, dry US HRW areas all pushed wheat to 1100c/bu (Dec ’22 contract). However, the emergence of India as a wheat supplier as well as poor US export data has seen some profit taking emerge.

The focus has obviously been on the bullish threats to supply.  Many of these issues are still at play and anything less than a perfect crop in the US would be viewed as a bullish input.  But this week, SovEcon raised the Russian crop to a record 87.4mmt with exports at 41mmt.  This compares to this years export forecast of 33mmt.  The export quota’s will be removed when the new crop is ready paving the way for an increase in Russian wheat exports.  SovEcon also go on to say that Ukraine could still export 20mmt of wheat this marketing year – however this is entirely dependent on a ceasefire and Ukraine getting full access to their Black Sea ports.

We are however, in a strange and turbulent period of time. In fact, it seems every turn you take, there is some kind of disaster looming (or potential disaster – I don’t want to sound too alarmist).  COVID is getting a giddy up in China again, forcing cities to lock down.  It is causing the mother of all bottlenecks at Chinese ports where literally thousands of vessels cannot load or unload due to a shortage of dock workers.

In Europe, the apparent Russian withdrawal was a tactical regrouping, with Russia again now fully engaged in war in Eastern Ukraine.  The war appears to be entering a phase of prolonged engagement – a long, drawn out affair that threatens food security and global inflation.

La Niña is trumpeting her return again for a third straight year with the mid Pacific remaining stubbornly cold.  To enter three straight years is unusual to say the least and a clear sign that mother nature has a wicked sense of humour.  There will be some anxious times ahead for Brazil where the safrinha corn crop will soon enter the reproductive stage.  Central Brazil has been drier than average of late and with the dry season about to start, there are some question marks over the ability of the soil moisture to carry the crop right through to the end of the season.

US winter wheat good to excellent conditions dropped a further 2% to be at 30% (compared with 53% gd-exc last year).  A dry and very windy forecast for the central Plains will not help the ailing HRW crop in Kansas or Nebraska.  US corn planting is starting to lag behind average due to cold and wet soils.  We know the US farmer can plant huge acres very quickly, so in my mind this is not a big issue.  It has helped corn futures push above $8/bu for the first time in a long time however. 

A series of storms is expected to impact HRW and HRS wheat areas (stretching through into the Canadian Prairies).  This may well help the winter wheats although Kansas and Nebraska are only getting part coverage.  The Prairies will be getting a shot of rain and snow, and while the moisture is welcome, they will be looking for some heat to build soil temperature so they can start their seeding campaign.  

The week ahead….

It remains an incredibly volatile market.  There remain so many variables that even the merest hint of a problem will keep the market edging higher.  After this week’s dip in futures, expect the buyers to come out to build their inventories.

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Data sources: Refinitiv, SovEcon, USDA, Mecardo

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