Wheat plants _ image

After last week’s USDA report and the bearish response to corn and beans, the wheat market has largely traded sideways. There was some good news with US wheat exports far exceeding the weekly expectations and news that French origin wheat was included in an Egyptian tender. However, with corn still in a tailspin, wheat was unable to rally on its own.

The market seems to have done all of the grinding lower for the time being.  Northern Hemisphere crops all appear to be in relatively good shape, Australian harvest is done and dusted and South American crops, while dented, have stabilised ahead of harvest.

Over the next three to four months, the market will try to determine what is going to ‘kill’ this season’s crop and price in risk accordingly. Traditionally, these are the opportunities to watch for if making decisions on forward sales.

Russian winter wheat appears to have dodged the severe cold due to a good protective cover of snow throughout the regions. SovEcon reports the crop could reach 92mmt with exports in the order of 45-50mmt. This will likely make Russian origin wheat the pacemaker for cash values into the next marketing year.  In other words, status quo.

Ukrainian wheat exports have grown throughout the year after an alternative grain corridor was established. This sea link will quickly help re-establish Ukraine as a major exporter assuming it does not become a Russian military casualty.

I suspect the greatest chance of a rally will be weather induced. The El Niño weather phenom is expected to give way to the La Niña weather pattern according to some models.  History shows this pattern is beneficial for Australia and SE Asia, but detrimental for South America and parts of the US. Should this weather pattern become entrenched –  and depending on its severity – I think we can expect to see weather dominate the market moves.

Of course, politics will get a good run on the bingo card with the Black Sea still far from being resolved and the flash point in the Red Sea a sign that the conflict in Israel is spreading beyond its borders. The impact on global inflation cannot be underestimated at a time where demand is already suffering due to tight economic conditions.

China remains in the background steadily chipping away at purchases. They have bought 99mmt of soybeans this 2023 calendar year, 70mmt from Brazil and the remainder from the US (down 13% year on year). Corn imports are also up 30% year on year at 27mmt, which flies in the face of a recent Chinese Ag Ministry statement that Chinese production was better than expected. Wheat imports of 12mmt are above the expected quota of 10mmt. Does Chinese demand remain strong? There are some doubts as the pig herd has shrunk recently, putting a cap on potential demand in the short term.

Strong US wheat exports are keeping a bid tone in the market. CBOT has risen above the US600c/bu, breaking through a level of resistance. The risks involved in the Red Sea may jeopardise Russian export pace as it could price them out of SE Asian business. Many moving parts here.

Data sources: USDA, Reuters, SovEcon, Mecardo

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