Tractor harvesting crops

Immediately after the invasion of Ukraine, we saw and became accustomed to a huge-ly volatile market, where wheat was jumping at shadows and anything that could have potentially been a threat to supply. However, over the past 6 months, that volatility has given way to a more apathetic view of global supplies and politics. It is a reminder that the wheat market can be a very boring place.

For the past week, wheat has been trading in a very narrow range, bouncing between levels of support at 560USc/bushels and an overhead ceiling of 580USc/bushels. The cheap Russian and Ukrainian supplies are keeping wheat firmly anchored. For wheat to break through the level of resistance we will need a supply shock or a big uptick in demand.

In my mind at least (ever the optimist) there are a few things to keep an eye on.

The Buenos Aires Grain Exchange (BAGE) recently cut their 23/24 wheat estimates by 5% to 15.4mmt. At least one analyst has the Argentine crop at 14.5mmt. Recent rains are believed to have arrived too late to help build production. The weather in Brazil is also causing some concerns. Too wet in the south, too dry and hot in the north in the middle of the soybean planting period. I’m not too sure I’d put too much emphasis on what this could mean for production this early in the season, but if bean stocks were to shrink, it could have the effect of lifting other commodities.

In Europe, a severe storm is currently crashing into the western coast with wild winds and heavy rain forecast for much of France. There are concerns (the market loves this type of conjecture) that the storm could make the seeding of winter crops difficult or increase the area of abandonment.

Similarly, much of the southern Russian wheat belt remains abnormally dry heading into dormancy. Again, far too early to talk about production cuts, but if the Russian crop were to go into dormancy under a cloud (pun not intended) it could create the type of speculation that keeps the market bubbling away.

China has been in the market recently, having purchased 2.5mmt of French-origin wheat and 2mmt of Aussie. There is some thought that China may need to import 12mmt of wheat this year to cover losses from the storm that destroyed their wheat and corn crops. If China were to start picking up big licks of US, Aussie, or French wheat, it might be enough to shift the current momentum in the wheat market.

One event in isolation might not shift the needle, but again the sum of all parts, coupled with global stocks at a tight 13% stocks to use, might be enough to lift the wheat market beyond the new year.
 

Next week

Harvesters are rolling across Australia. Quality is reported to be very good but there is some variability in yields due to drought, frost, and mice damage. It will be interesting to watch yield results roll in, with any cuts to Aussie production likely to bite into exportable surplus.

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Click on graph to expand

Click on graph to expand

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

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