In the past week, the wheat market has given up everything that it had gained since Russia pulled out of the Black Sea grain initiative. This is despite continued conflict engagements between Russia and Ukraine. These events in isolation, could have reasonably been expected to see big moves higher, but the market seems to have other ideas.

The grind lower across all ag commodities is on improving US Midwest weather.  This virtually ensures that the US corn and bean crops will achieve average or better yields.  The risk premium that had been built into Chicago is being stripped away and I suspect that wheat is simply collateral damage.


The other issue weighing on wheat is slow demand.  An Egyptian tender this week saw plenty of offers, but GASC (Egypt’s General Authority For Supply Commodities) only bought 360kmt, a relatively small parcel given the prices being offered.  Russian wheat filled the dominant percentage of grain bought but one small parcel was awarded to Romanian origins.  Egypt is reported to be unhappy about the collapse of the grain corridor due to the reduction in competitive pricing now that Ukraine is essentially out of the picture.  The small overall purchase may be a silent protest, but equally may be a sign that Egypt’s financial woes haven’t been completely solved either.


There are signs that wheat prices may have bottomed out, however.  From a fundamental perspective, major exporter stocks are at their lowest level since 2012/13 (see Figure 1). The Russian ‘floor’ price has been raised recently from US$240/t to $250/t.  Reports are that India could be in the market to import as much as 9mmt of wheat, which is not entirely priced into the demand grid.  US SRW wheat is pricing demand at these prices and from a chart perspective, we have seen prices bounce off these levels before.


We’ve noted before that the speculation and algorithm traders don’t seem to pay due respect to the fundamentals recently.  The muted response to this week’s Black Sea escalations is evidence of this. So, while there is good reason to think this market is oversold, the proof will only be known in retrospect.

Next week

With the Northern Hemisphere harvest underway, attention will soon turn to row crop yields and Southern Hemisphere production. Further production cuts will be supportive of prices.

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

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