After plunging 60 USc/bu over seven trading sessions coming off the latest rumours of export restrictions form Russia, and under normal seasonal price pressures, wheat futures had a strong finish into the end of the month. The market lifted by 30 USc/bu from early last week to the highs seen on Thursday and Friday last week.
Once again, the downward trend was broken sharply with renewed stories that Russia will need to eventually limit exports, and that restrictions may come in as low as 25 million tonnes. That compares to 40mt of exports last year.
Initially it looked as though the rally might be a one day wonder again, as has every other story about export restrictions form Russia and Ukraine, but on Friday night last week the market turned around and recovered again. Once again, the threatened weakness came from another round of weak weekly export data from the US.
This time though the rally on Friday was driven by multiple factors, with news from the EU, Black Sea, Canada and Argentina all involved.
Starting with the EU, there has been another round of lowered production estimates released, with a flow over to projected export volumes. Exports are already well behind last year’s pace at this stage of the year. There is still some uncertainty over the final estimates, but the trend remains for tightening supplies. Production estimates are now close to 6mt under those assumed by the USDA.
In the Black Sea it is acknowledged that exports from Ukraine and Russia may need to be restricted in some way. It is getting harder to see Russian exports exceeding 30mt, against 35mt being projected by the USDA. In the meantime, merchants are said to be aggressively offering Russian wheat to clear as much as possible before restrictions are imposed. In the short term this will continue to pressure global wheat prices.
The end of the month also saw revised yield and production estimates released for Canada. They surprised the market with a crop estimated to be 1mt lower than last year. The market had been excepting a 400,000t year on year lift, but areas of drought, and generally hot conditions, have reduced yield potential. The USDA forecasts are around 2mt above the Canadian forecasts.
In the case of Argentina, it is news of a potential tax on wheat exports. The Argentine peso has collapsed, making Argentine wheat very competitive in world markets. The government is looking to tax grain exports as a way of raising revenue and capturing some of the currency gains flowing to exporters.
Across the board it looks as though the USDA will have to revise down production numbers, and export projections, for most of the major exporting countries, and that is before thinking about what they will do to their Australian projections.
That should be supportive of global wheat prices as we go into the end of the year, but right now global supplies are at their annual peak, and this is pressuring prices in the EU. As well, we have aggressive pricing from Russian merchants keen to export wheat as quickly as possible ahead of any restrictions.
The final short term price pressure continues to come from the lack of US exports, despite all the projections saying that other suppliers will not be able to meet global demand.