Russia Eases Wheat Harvest Price Pressures
Nearly a year ago, we wrote a FarmLead Insights piece on the rise of the Russian wheat industry, and how they have been a key factor in the global wheat market.
While combines roll in Western Canada, right now it seems like, Russia’s production, exports, and policies are more important than the clouds in the sky. That’s why we saw prices reverse course this past Friday and whip higher. In about 5 minutes, we saw a 4.5% jump in wheat prices on news that Russia might limit exports in the wake of dry conditions and similar actions by neighboring Ukraine on milling wheat.
Rumors are swirling -- well at least a few traders believe -- that Russia might limit grain exports once the country has sold 30 MMT. Russian officials are still saying that they will export 35 MMT of wheat this year as they want to remain the top exporter of wheat in the world. But just the mere mention of export quotas will lead to a big jump in prices. The same thing happened two weeks ago when wheat prices rallied more than 7% after the Ukrainian government issued a Facebook post and everyone overreacted.
Last year saw record crop sizes and record exports for Russia. Total grain exports, according to UkrAgroConsult, came in at 53 MMT for 2017/18. The country was exporting more wheat than any country dating back the day back to 1992-93 when the U.S. sat atop the wheat game. Increased fertilizer and significant farm and infrastructure showed Russia’s potential now and in the future.
Explicitly, the country exported about 40.3 MMT of wheat in 2017/18, according to UkroAgroConsult. That figure was 49% higher than the 27 MMT it shipped in 2016/17. But this year has produced a different result. Hot, dry weather has impacted the development of grain across Russia. In late July, the USDA’s attaché in Moscow cut its total grain production forecast by 13.8 MMT to 109.9 MMT.
FAS Moscow now projects 2018/19 wheat production to come in at 67.5 MMT, a figure that is 500,000 MT higher than the official USDA estimate. The figure is well off from the 85 MMT of wheat production for 2017/18, while exports were posted at 42 MMT.
For the week, Russia’s wheat export numbers slid by roughly 33% week-over-week. The country exported just 832,000 MT of wheat. Naturally, should this slowdown continue and complement rumors of a cap on exports at 30 MMT, wheat prices have room to run significantly higher.
However, we should keep in mind that currently the USDA is forecasting the second-largest global ending stocks of wheat in 2018/19 (with last year, 2017/18, being the record). Ultimately, this means that any rallies could easily be reined in by the fact that there's still a lot of wheat left in the world. The big question is on quality though.
The extreme dryness along the Black Sea and in many parts, provides a bit of a harbinger of what else will come across the continent as the market starts to think about the farmers in these areas starting to plant their winter wheat crops for the 2019/20 crop year.
This will provide additional support for U.S. and Canadian wheat exports. We know that livestock farmers across Europe have turned to corn for feed as we watch European wheat prices head higher. The next WASDE report on Wednesday, September 12thwill likely fuel additional cuts in stocks in the U.S. and Canada as additional wheat exports are accounted for.
Something we’re also watching for is the August 31st production estimates from Statistics Canada. The big question though is how much will the market believe these estimates, since the survey was compiled at the end of June, and August was basically a dry, hot sauna for most of the Canadian Prairies. Needless to say, while the combines roll, harvest pressure on wheat prices might not be as pronounced this year.
President & CEO | FarmLead.com