Grain market review: Wheat

by Chris Lyddon
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wheat ears
 
Weather concerns, particularly in the United States, but also in Europe have created nervousness in a wheat market that continues to look well supplied.

The International Grains Council (IGC) noted in its most recent Grain Market Report that export prices initially had weakened “on large nearby supplies and strong competition for export business, with movements in currencies affecting the relative competitiveness of major origins,” since its previous report at the end of November.

“Prices were subsequently slightly firmer, mainly on concerns about poor weather for winter wheat in the U.S.,” the IGC said. “However, higher-than-anticipated U.S. plantings and generally heavy nearby export availabilities around the world saw renewed price pressure from mid-January.”

The IGC GOI wheat sub-Index had softened by 1% since the November report.

“Although futures in the U.S. sometimes traded at contract lows, short covering was occasionally triggered by poor weather for 2018-19 winter wheat, with concerns accentuated by ideas of historically low seeded area,” the IGC said. “Sluggish export demand and higher-than-anticipated plantings data put fresh pressure on markets in mid-January.”

Reflecting worries about the crop, HRW export values gained a net $5 to $225 fob (Gulf), while SRW declined by $6 to $181 fob (Gulf). DNS quotations were $8 lower at $276 fob (PNW).

“In spite of unfavorable currency movements, milling wheat fob prices in the Black Sea region showed little overall change, at $193,” the IGC said. “Competitive prices, at about $178 fob (Up River), helped Argentina sell to North African and Asian markets, displacing some demand for E.U. and Australian supplies.”

The IGC reported poor export sentiment weighing on the market in the E.U. (France), “but a stronger currency pushed U.S. dollar-denominated export prices $2 higher to $194 fob (Rouen).” Prices in Australia were supported by a provisionally reduced old crop output figure, with price gains restricted by competition from Black Sea wheat in Asia. Australian Premium White rose by $3 to $225 fob in South Australia.

In its Agricommodities Market Report in January, Rabobank forecast “marginal price strength expected across global wheat futures in the short term, albeit from near contract low levels.” The bank also forecast “bullish price action on CBOT, to $470 per tonne by Q2 2018 and for MATIF prices to reach €173 per tonne by Q4 2018. Export pressure has persisted throughout the northern hemisphere winter, with an exceptional Russian export program.”

wheat
Wheat (U.S.), No. 1, hard red winter, ordinary protein, export price delivered at the U.S. Gulf port
Source: U.S. Department of Agriculture; World Bank
 
Export pressure has continued through the northern hemisphere winter, with an exceptional Russian export program, the report said. It continues to weigh on the market.

“U.S. and E.U. export pace has really suffered, down 7% and 19%, respectively year on year, with prices offered up to $15 per tonne above equivalent origins,” Rabobank said. “That said, the winter period has also brought production concerns.”

Rabobank reported that the “U.S. southern plains drought continues without relief, with areas ranging from moderate to extreme drought,” citing the U.S. National Oceanic and Atmospheric Administration. “This will become particularly relevant as spring approaches and crop water requirements increase considerably.”

La Niña conditions suggest dryness persisting until the second quarter of 2018, “a factor that threatens yield development.” The prospect of freezing temperatures across the United States and the southern Black Sea region raised the likelihood of winterkill.

“The full impact will only be assessed in the spring, but some risk of higher abandonment is present,” Rabobank said.

It described the weather across Europe and Southern Russia as “largely non-threatening” with positive production prospects. Despite freezing temperatures across Ukraine, local sources regard regional crop conditions as good. Some support was provided to U.S. wheat by a 3% year to date fall in the U.S. dollar index, while ruble strength, helped by Brent crude, had brought Russian offers up by $5 in the year to date.

David Woodland, trader at Gleadell Agriculture, a U.K. business jointly owned by ADM and French cooperative InVivo, noted U.S. market nerves about the effect of weather.

“There seems to be plenty of moisture in the Delta and across in the East but very little respite from the dry conditions that are gradually expanding across parts of the southern plains and central plains of the United States,” he told World Grain. At the time he spoke, late February, there was more cold weather forecast in the United States as well as parts of Europe.

European wheat is stable, with limited export demand. As well as the Black Sea, Europe faces competition from Argentina in its traditional export markets. Russian prices had edged higher, helped by an oil-driven rise in the ruble and a lack of farmer selling, but the Black Sea remained the benchmark for international markets. He felt that potential Russian wheat exports are underestimated. The E.U., at the same time, faces ending the year with a big carry out.

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