Wheat stays afloat in volatile market

While most of the affected economies recovered in the days following, the hit to crude oil rattled the oilseed complex.  Accompanied by an upheld appeal in the US Federal Court to allow small refineries to bypass the renewable fuel mandate – potentially reducing the demand for soybeans, with implications for the production of biodiesel – soybeans and canola have had a week they’d like to forget.

Fortunately, wheat has appeared to be relatively immune to the noise from the outside markets. There was a certain amount of technical short-covering by the managed money crowd to help cover the losses in the finance sector, but the greatest support to the wheat market came from the deteriorating Western EU crop conditions.

In a recent article, Barchart reports “an updated estimate for EU27 wheat production from Stratégie Grains shows a 5.8mmt drop to their production estimate at 116.5mmt. That was mainly due to a sizeable cut to the French crop, now at 25.6mmt and the lowest since 1986”. Adding fuel to the rhetoric are reports that wheat delivered at some French sites is not making the quality specifications required to allow receival.

For all this being said, the feeling in the wheat market is one of overwhelming weight. At the recent AGIC meeting in Melbourne, keynote speaker Rory Deverell from Black Silo Commodities gave an insightful view of the somewhat conflicting forces driving the current market. He said (and I’m paraphrasing) there was an over importance of the US (and the USDA as an information source) on wheat markets. By focusing on the major exporters – whose stocks are getting tight – the wheat market has missed the devil in the detail. That is, many of the world’s minor exporters are overachieving in production and some of the world’s bigger importers, are also recording better-than-average production. The implication here is that global wheat stocks are far more than widely published. Compounding this is the fact that demand is relatively subdued, with Türkiye absent from the market and Iraq, Spain and Pakistan all recording good domestic crops. This goes a fair way towards answering the question of why wheat markets have been steadily falling in the face of what were thought to be extremely tight global ending stocks.

It is not all gloom and doom in the wheat pit.  Egypt announced a tender to buy 3.8mmt of wheat over the next few months which while likely be all Russian origin, will be a welcome return of the world’s largest importer. The war in Ukraine has taken another turn with Ukrainian forces launching a counterattack in Kursk. While not a big news story for wheat, it will be interesting to see how Russia responds.