by Chris Lyddon
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Wheat prices have been under pressure, but weather concerns around the world have added a supportive element.

“World wheat export prices remained under pressure during May, weighed by slack nearby demand and expectations for another season of abundant global availabilities,” the International Grains Council (IGC) said in its Grain Market Report.

Its IGC GOI index had fallen by a net 5% since the previous report a month earlier. “Nevertheless, there was a renewed focus on potential weather threats to this year’s global harvest,” it said.

In the U.S., concerns about crops were most acute in HRW regions, where the annual Wheat Quality Council tour found below average yield potential following prolonged dryness, it said.

“While recent rains were beneficial, amounts became excessive in some areas and were seen as potentially detrimental to yields and, in particular, crop quality,” it said.

“Given continued disappointing export sales, nearby U.S. export basis levels were eroded, especially for SRW. Since the last GMR, SRW export quotations weakened by $15, to $208 fob (Gulf). Late in the month, export premiums for HRW entirely recovered from their initial losses, bolstered by crop quality concerns and logistical problems caused by flooding, leaving export values $4 higher m/m, at $235 fob (Gulf).”

While E.U. futures often responded to strength in the U.S., market sentiment remained comparatively weak, pressured by mostly good prospects for the next harvest and anticipated strong competition for business from the Black Sea region, the IGC said.

“Amid little nearby export interest, export quotations in France fell by $12 m/m, to $183 fob (Rouen),” the IGC said. “Although showing some slowdown, solid export loadings underpinned values in Germany, posting a small net gain m/m, to $203 fob (Hamburg).”

Russian tax changes mean that country is set to be a big exporter in 2015-16.

“In the Black Sea region, nearby milling wheat prices fell by $11 m/m, to $195 fob,” it said. “Although Russia’s export tax was suspended for the remainder of the season, export interest was reported to be weak, with many buyers awaiting new season supplies.

“New crop Black Sea export values stayed competitive for the start of the 2015-16 marketing year, with July milling wheat quotations down slightly m/m, to $189 fob. Export prices in the E.U. (France) weakened to $192 fob (Rouen), only a small premium to Black Sea values.”

In a monthly report on agri commodities, Rabobank said it maintained a neutral to slightly bullish view of wheat on the basis of crop condition issues in several global regions, noting a decline in wheat prices in the previous weeks.

“The USDA’s June crop report reversed the early June rally by forecasting greater U.S. winter wheat production than the market expected, while modestly boosting global production,” it said. “But concerns about quality and potential price impacts can still evolve when the harvest progresses.”

The Black Sea region is now the benchmark for export prices, the bank said. “Russian wheat exports had been flowing again since the export tax was canceled in mid-May,” Rabobank said.

A floating tax was introduced from July 1, but Russia has already won several export tenders for 2015-16 delivery. Rabobank has increased its estimate for the Russian crop by 1 million tonnes to 55-56 million, “given that winter wheat is mainly in good condition and that the spring barley planting has caught up to last year’s place. Together with the available stocks, this should allow for more than 20 million tonnes of Russian wheat exports.”

The USDA’s Economic Research Service explained in its Wheat Outlook why Russia’s tax is not expected to hamper 2015-16 exports. “The new tax will kick in and limit Russian exports only if world wheat prices get much higher or/and the ruble exchange rate deteriorates much further,” it said. “With current near record projected world wheat and corn output, wheat prices are unlikely to increase significantly any time soon.”

The Russian government is concerned about high food inflation in the country, and the floating wheat export tax is an attempt to ensure that in case of a ruble crash, wheat supplies do not get drained out of Russia, it said.

“The new tax regime appears to increase the risk in making forward contracts for deferred delivery, but encourage export contracts for prompt delivery.”

Rabobank also reported that wheat in parts of France and Germany has suffered from dry weather and forecast a 10% decline in E.U. exports to 30 million tonnes, “with fierce Black Sea competition.” U.S. exports will also face fierce competition with the added problem of a strong dollar.

Chris Lyddon is World Grain’s European editor. He may be contacted at: chris.lyddon@ntlworld.com.