If you find yourself perplexed by the current state of the wheat market, you are not alone. The most widely traded wheat class, US SRW, is also arguably in the most bullish of positions. US supplies are at 25% stocks to use, the lowest in ten years. Ex-ports are up 22% from a year ago, yet CBOT is continually sold off (as per Todd Hult-man - DTN).
It is an interesting dichotomy, the contrast between stocks to use and
the sharp losses we are witnessing in wheat. Corn and beans have their own
bearish story contributing to the drag. Major exporter wheat Stocks to use numbers on paper should indicate a degree of support, with the IGC and
USDA recently reporting wheat stocks at an 8-year low.
Today’s reality is, that where wheat is plentiful corresponds (geographically) to the most dense
areas of demand. The Black Sea neatly channels out to the Mediterranean and
straight into the Middle East and North African nations. The area also lends itself to direct transport through the Suez Canal (via the
Red Sea) to the consumer-dense SE Asian countries. A cheaper freight leg only compounds the issues
being experienced by other exporters.
Russian wheat last traded somewhere close to US $200/t FOB down $8/t on
the week. The race for the bottom is ensuring that Russian origin is very high
on the tender list. French, Romanian and Ukrainian
origins are also competing at very low prices to try and win business. The
rightful question is, can this be sustainable? Especially when reports are suggesting that wheat and corn prices are
now below the cost of production in some countries. Russian exports are
expected to reach a record 51mmt this year, leaving a sizeable carryout of
12mmt, even before the new season crop, estimated at a very healthy 92mmt,
comes online.
It will be interesting to watch what happens here. The low price of
wheat may stimulate some additional buying. Or does it turn acres away? Either
way, it should lend support to wheat prices in the long term. The elephant in the room will remain the competitiveness of Russian wheat
relative to the rest of the world.
The week ahead….
Another USDA report is due next week. Market participants will be watching corn sowing progress and conditions in Brazil as well as US stocks. China cancelled 130,000mt of US SRW last night but may be in for another bite now that prices have fallen.
The worm seems to have turned somewhat in the grain and oilseed complex. While there is some short-term support coming from yet more geopolitical unrest,
Independent analysis and outlook for wool, livestock and grain markets delivered to you as it’s published
Listen to the podcast
Join the Mecardo team for the Commodity Conversations podcast, where we provide short weekly market recaps and longer conversations with guests to discuss the drivers and trends in livestock, grain and fibre markets.
In this report for LiveCorp and MLA, we analysed the historical trends in the demographics of the Australian sheep flock, examining domestic factors that influence farm-level enterprise decision making.
We don’t just bring you the most up to date market insights. Find out more about Mecardo’s services including risk management advisory, modelling, benchmarking, research & consultancy.
The Russian Bear Market
It is an interesting dichotomy, the contrast between stocks to use and the sharp losses we are witnessing in wheat. Corn and beans have their own bearish story contributing to the drag. Major exporter wheat Stocks to use numbers on paper should indicate a degree of support, with the IGC and USDA recently reporting wheat stocks at an 8-year low.
Today’s reality is, that where wheat is plentiful corresponds (geographically) to the most dense areas of demand. The Black Sea neatly channels out to the Mediterranean and straight into the Middle East and North African nations. The area also lends itself to direct transport through the Suez Canal (via the Red Sea) to the consumer-dense SE Asian countries. A cheaper freight leg only compounds the issues being experienced by other exporters.
Russian wheat last traded somewhere close to US $200/t FOB down $8/t on the week. The race for the bottom is ensuring that Russian origin is very high on the tender list. French, Romanian and Ukrainian origins are also competing at very low prices to try and win business. The rightful question is, can this be sustainable? Especially when reports are suggesting that wheat and corn prices are now below the cost of production in some countries. Russian exports are expected to reach a record 51mmt this year, leaving a sizeable carryout of 12mmt, even before the new season crop, estimated at a very healthy 92mmt, comes online.
It will be interesting to watch what happens here. The low price of wheat may stimulate some additional buying. Or does it turn acres away? Either way, it should lend support to wheat prices in the long term. The elephant in the room will remain the competitiveness of Russian wheat relative to the rest of the world.
The week ahead….
Another USDA report is due next week. Market participants will be watching corn sowing progress and conditions in Brazil as well as US stocks. China cancelled 130,000mt of US SRW last night but may be in for another bite now that prices have fallen.
Have any questions or comments?
Click on graph to expand
Click on graph to expand
Data sources: AWEX, Mecardo
Categories
Have any questions or comments?
Moving in the right direction
The worm seems to have turned somewhat in the grain and oilseed complex. While there is some short-term support coming from yet more geopolitical unrest,
Geopolitics and shorts weather
Amazing the difference a week can make. It all started last Friday morning, with continued escalations in the Middle East. The wheat market jumped 20
Exchange rates helping wheat values
The exchange rate has been in the news lately, with the Australian dollar falling to a six-month low last week. Given this, we thought it
Argentina dealt a cruel hand
It has been a relatively benign week in the wheat market. Some of the risk premium that had built up over Middle East concerns has
Want market insights delivered straight to your inbox?
Sign up to the mailing list to get regular updates to new analysis and market outlooks
Independent analysis and outlook for wool, livestock and grain markets delivered to you as it’s published
Listen to the podcast
Join the Mecardo team for the Commodity Conversations podcast, where we provide short weekly market recaps and longer conversations with guests to discuss the drivers and trends in livestock, grain and fibre markets.
Research: Analysis of the Australian sheep flock
In this report for LiveCorp and MLA, we analysed the historical trends in the demographics of the Australian sheep flock, examining domestic factors that influence farm-level enterprise decision making.
SERVICES AND CAPABILITIES STATEMENT BROCHURE
We don’t just bring you the most up to date market insights. Find out more about Mecardo’s services including risk management advisory, modelling, benchmarking, research & consultancy.