It has been a bumpy week in the wheat market. The events driving the choppy price action have been somewhat conflicting, typical of a confused market.

A poor initial crop condition score for the US winter wheat crop initially saw prices jump, only to be hammered lower by a forecast of some much-needed rain in the HRW areas. The condition index of only 38% good to excellent was the second worst on record and well below the 47% recorded this time last year. The forecast rains of anywhere between 15-80mm (and unseasonal warmth) should see a significant improvement in crop conditions and may continue to weigh on prices.

 

In December, Ukraine looks set to join Russia in introducing a minimum price floor. Assuming the strategy has the desired effect of keeping prices above current levels, it should open the door for other origins to become more competitive and win some consumer business. Last night, the results of the relatively modest 50kmt Algerian tender showed that Russian wheat was indeed priced higher than the winning origins of Ukraine and Romania.

 

There is some suggestion that Russian exporters are willing to test the recently established floor price and would sell below the level set by Moscow. Recent activity suggests Russian FOB values at $237/t, which is down $8/t from the previous week. Do the policymakers come down hard on the rouge traders?

 

Meanwhile, the world watches and waits for the outcome of next week’s US election. Both political parties are believed to share a view of increased protectionism and a trend away from the free trade liberalism of the past.  Ag markets are bracing for an increase in trading ‘blocs’ where trade is limited to political allies and closed to opponents.

 

We saw in the previous Trump Administration, that once US tariffs were rolled out, it caused a cascading effect of retribution and retaliation on US goods –  chiefly agricultural – to the tune of US$27B. (GrainGrowers Ltd published an excellent article (read more here) recently outlining the likely impacts on Australian goods and measures needed to shield ourselves from any fallout).

 

It appears that many consumers are bracing themselves for political change. We have seen China switch to Brazil as the preferred origin for corn and soybeans. China and Russia are forming closer ties, and the Russian Government has recently signed agreements with 13 sovereign countries to forge closer ties including direct agricultural trade. More recently, we have seen the response of a proposed Canadian tariff on Chinese electric vehicles and the almost immediate retaliatory threat against Canadian canola trade.

The week ahead….

Change is in the wind. I’ve said before that markets don’t like uncertainty, so I think we can expect some volatility in the weeks ahead.

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Data sources: Grain Growers Ltd, Reuters, Next Level Grain Marketing, Bloomberg, Mecardo

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