Harvester in crop photo by George Jacka

Whoever said grain marketing was boring would be eating their words. The two-way action that wheat has seen this week has been nothing short of chaotic. The Russian decision to walk away from the grain initiative, only to rejoin a couple of days later, has made the market move like a puppet on a string. The master puppeteer is no doubt enjoying his newfound power. All eyes are now focused on the Nov 19 deadline as there is no guarantee that the corridor will continue despite this week's emergency negotiations.

The one thing that will play on Putins mind is that the corridor was going to continue with or without Russian involvement.  Turkey and the UN both made it clear that bulk vessel convoys would continue with naval escorts if required.

The Russian backflip was secured by a declaration from Ukraine that the marine corridor would not be used for military purposes. The irony is appalling, but with Russian losses mounting, the Kremlin needed to be seen to be gaining concessions. While all this was happening, the USDA released their HRW wheat crop condition report. At 28% good to excellent, it was the worst autumn (fall) condition rating in recent history.

The drought which has impacted the US is now affecting 75% of the country and is causing a raft of problems from low river levels to unseasonal wildfires to poor winter crop establishment.  It is important to note there is a poor correlation between early-season crop conditions and final yield.  It does mean that substantial moisture is needed in winter and spring to enable the crop to reach anything like its potential.

Ukraine kept its forecast of winter wheat area at 3.8M hectares, down from 6M+ last year  – of which only 4.6M were harvested due to Russian occupation. The pace of seeding is also slower than normal due to recent poor weather and the ability to source inputs. The net result will be a significantly smaller crop out of Ukraine next year regardless of whether the war continues.

These two points alone raise an important question regarding the price outlook for the years ahead.  Global stocks remain tight relative to demand.  Southern Hemisphere production which usually fills the demand gap through Jan-Jun is all of a sudden looking tighter with poor crops in Argentina and a weather-damaged crop in Australia.  These factors alone will make the wheat market particularly jumpy in the face of any production concerns in the months ahead.

Next week

It is a tough market to try and trade at the moment.  A lot of market participants have moved to the sidelines making the moves more abrupt. It feels like the wheat market should remain supported on the back of tight supplies and risks around the Black Sea.  However, a deteriorating economic climate and flat demand muddy the waters. 

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Data sources: Mecardo, USDA, Reuters

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