Wheat puzzle still has pieces missing

There are a few bullish stories that remain in the background. The key southern winter wheat areas in Russia remain dry and are a point of concern.  The winter wheat areas of Russia have benefitted from a moderating climate over the past decade or so. Less hostile winter conditions have meant more of the crop has escaped winter kill resulting in bigger crops and expanding harvest areas. Whether these climate observations continue to favour cereal production in Russia is up for debate.  The risk for the 24/25 winter sown crop remains that a crop with poor establishment and vigour will be at greater susceptibility to a sudden cold snap or lack of a protective snow cover during the winter months.

Brazil is also on watch. The soybean sowing window is now open but the seasonal break has not eventuated. The lack of rain is not only holding up the seeding program it is causing problems with bushfires and river transport, as water levels are exceptionally low. A La Niña forecast for the later part of the year usually heralds below-average rainfall in South America, so the current dry conditions are being monitored, albeit with the knowledge that there remains plenty of time.

Alas, the bearish factors remain firmly entrenched. Chinese demand remains a vital piece of the puzzle and one that is not without some questions. USDA has forecast Chinese wheat demand pencilled in at 12mmt, corn at 23mmt and soybeans at 100mmt. However, Argus reports that they believe import demand to be closer to 9mmt for wheat and alarmingly, only 14mmt for corn. Chinese demand has been slow to materialise and should it be at the lower end of forecasts, it will necessitate a rethink of global carryout.

Despite seasonal conditions trimming yields in Russia and Ukraine, exports out of the Black Sea continue at pace. This is not unusual as traders try to avoid peak sales during the winter months which can make the logistics of loading a vessel more difficult. Russian FOB values have climbed a little over the past few months which is seen as supporting global values.  Prices in the Black Sea will have to keep rising in order to shift demand to other origins before we see a general trend higher.

Lastly, spare a thought for growers in SA and western VIC. While all the news has been about the huge potential in NSW and WA, the guys in the middle have endured one of the toughest growing seasons on record. Decile one GSR and more recently widespread frost will likely mean a well below average season without the benefit of higher prices to compensate.