Spring holds the key for price direction

Grain falling through hands

The wheat market is walking a fine line. We know that Russia is still shipping wheat, we know that Ukraine can’t - unless you call the trickle being moved through Romania a reliable outlet. The US was supposed to be the residual supplier to the world, but since the war started, export volumes have if anything decreased. Year to date (YTD) export pace is down 18%.

The apparent withdrawal of Russia from many areas of Ukraine is also seen as a positive for easing tensions.  This is likely the reason behind the recent weakness in the wheat market.  The super heating that the market experienced at the start of March is now cooling and has now retraced to be around 65% of the peak.

We are seeing buyers re-emerge having gone into their shells when the war started. Particularly the bigger, oil rich nations are buying up big.  Saudi announced a tender for 330kmt earlier this week and ended up buying 625kmt.  The delivery period is from Sept-Nov and is believed to include Australian origin wheat. Jordan is also tendering for 300kmt with the results of the tender due out soon.  The Mid East/North African countries remain big buyers of Russian wheat.  SovEcon has increased Russian export estimates to 34mmt, which is 2mmt higher than the USDA.

The USDA has started to reissue their national crop assessment reports and if the first issue is anything to go by, the US HRW wheat crop has a long way to go.  At just 30% good-excellent, the rating is at the lowest it has ever been for this time of year. This compares to the trade estimate of 40% gd-exc and 53% this time last year.  Poor early conditions do not always translate to poor final yield results, but with only 6-8 weeks of vegetative growth left in the season, the crop is going to have to get a wriggle on.

The HRS wheat areas of North and South Dakota look to get a good shot of rain this week, but the HRW wheat areas of Texas, Oklahoma and Kansas remain dry and windy.  (figure 2) Importantly, the Canadian Prairies also remain dry ahead of their spring sowing campaign. Adrian Ladaniwskyj  took a close look at the US wheat crop outlook on Mecardo (view article) this week.

The corn market is also shaping up to be a factor in wheat pricing.  We know that the US corn market is about 6 x the wheat market, so where corn goes, wheat tends to follow.  We saw last week that the US farmer intends to plant less corn as input costs squeeze acres. We also know that Ukraine, as a major exporter of corn, has its own troubles. The cost and availability of nitrogen fertilisers does not look like improving anytime soon.  China bought 1mmt of US corn this week having ignored the US for the majority of this marketing year. It is a big purchase in anyone’s language, and may indicate a tactical shift in thinking.

The week ahead….

The war in Ukraine has appeared to have entered a new phase with the withdrawal of Russian troops from key areas.  This may allow the Ukrainian farmer to complete field operations with relative freedom, if they can get the fuel and fertiliser.  We understand that upwards of 20% of Ukraine spring sown crops will not get planted this year. We suspect the war is far from over unfortunately, and will likely remain the central element in future wheat market movement.

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Data sources: USDA, Reuters, SovEcon, Mecardo.

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