The lack of a corridor is not affecting the Russian export program. Russian production was ratcheted up again this week to be now around 92mmt – the second largest on record, coinciding with their largest ever exporting program set last month. It highlights that Russia Is the world’s super power in wheat. The Russian Gov’t has set a floor price of US$270/t FOB which is higher than most of their European competitors. Egypt (GASC) finally bought 480kmt of Russian origin wheat this week, having baulked at the asking price in recent tenders.
Ultimately, the Black Sea remains the barometer for wheat pricing. While Russian exports are flying out the door, the price will remain under pressure. The US can’t buy demand at these prices and the consumer is happy to take small bites out of the enormous pile of Russian grain. Risks remain of course – Russia seems hell bent on destroying port infrastructure along the Ukrainian coast line, targeting the Danube port system for the fourth time in five nights. Should the Ukrainians target the Kerch Strait- responsible for about 30% of Russian exports – be shut down, it would create a huge supply issue.
We could make a case for wheat prices to rebound over time. Canadian wheat production was recently cut by 4mmt to 29.5mmt down 14% year on year. ABARES has Australian production pegged at 25.4mmt down 33% from the 39.2mmt grown last year. Argentina is also dry across the key wheat growing areas. While Russia is dominating trade flows and prices today, I can’t help but wonder if Southern Hemisphere production (and Canada) will tighten export stocks enough to add some support.
Another USDA report will be coming out next week. It would be unlike the USDA to take a knife to the corn and bean yield estimates, but recent hot weather is likely to have done some damage. Whether the USDA’s number fall within the trades best guesses, will determine which direction the market trends.