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.
The wheat complex has experienced a rather choppy few days, with systematic profit-taking shifting some of the heat out of the supply-squeeze-driven buoyancy we are
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Wheat on a rodeo bull called ‘Whipsaw’
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.
Have any questions or comments?
Click on graph to expand
Click on graph to expand
Data sources: Reuters, AHDB, Next Level Grain Marketing, Mecardo
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Have any questions or comments?
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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.
MEET THE TEAM
Our team of market analysts are recognised as leaders in Australian Ag market analysis, providing invaluable insights to help you navigate the ever-changing commodity landscape.
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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.