Wheat on a rodeo bull called ‘Whipsaw’

Trinidad and Tobago ship

Last week I mentioned that I thought the wheat market was oversold and due for a correction. And so it came to pass, as wheat staged a strong recovery on news that a Ukrainian drone had struck a Russian oil tanker.

The implication here is that with longer-range weapons, Ukraine’s ability to strike back has been enhanced, putting all Black Sea maritime traffic at risk.  But I’m also starting to see a pattern whereby the market soars on a potential supply issue and gradually whittles down over the corresponding week.  A ‘whipsaw’ action if there ever was one (See Figure 1).

There are renewed calls for a Grain Corridor 2.0 as the grain that is shipped from both Ukraine and Russia is critical to global grain supplies.  Ukraine has stated it will create its own ‘corridor’ although it is not known how this would work in practice.  Turkish Prime Minister Erdogan is being hailed as a deal maker here but warns that the ‘West’ is going to have to make some compromises to get the Kremlin’s tick of approval.

European harvest has kicked off.  Consultancy firm Stratégie Grain has cut EU27 soft wheat production to 124.7mmt, down 1.5mmt from last month and down from a seasonal high forecast of 132mmt.  This brings total European wheat production to below last year due to a hot and dry summer.  Similarly, EU barley production is tipped to be 4mmt below last year’s crop.

Despite cuts to European production, sizeable carryover stocks should mean supply remains reasonably comfortable, however, it does again bring into focus the tightening stocks held by the major exporters. 

Of course, the elephant in the room is Russia.  Export pace records keep being broken and with another harvest being delivered, there is no shortage of grain waiting to be shipped.  They will continue to set the tone for global prices and anything that threatens to disrupt supplies out of Russia would be highly inflammatory.  Egypt (GASC) purchased another 235kmt of Russian wheat this week at US$15/t higher than their previous purchase a week earlier.  The floor in prices appears to be holding for now.  The US is also seeing an uptick in wheat purchases indicating the market may now be more comfortable buying at these levels.

Next week

All eyes are on tomorrow’s USDA WASDE report which will give the market a look at corn and bean supplies as well key wheat exporter production.  It could make for some interesting reading.

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Click on graph to expand

Click on graph to expand

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

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