As the wheat market has digested the results of the northern hemisphere’s wheat harvest, in a year where weather-related production problems were widespread, wheat prices have moved up sharply with each piece of bearish news.

For example, in the U.S. Wheat Council’s (USW) most recent Wheat Letter, USW Market Analyst Casey Chumrau noted a “bump up” following the release of the U.S. Department of Agriculture’s (USDA) World Agricultural Supply and Demand Estimates for October.

“For the second time in two weeks, USDA’s production estimates for wheat came in below industry expectations and provided support for futures markets,” she noted.

In its Grain Market Report, the International Grains Council (IGC) noted how wheat has been showing more independence in its pricing from other wheat crops.

“Concern about the outlook for Black Sea exports was the key focus of the market, with sustained speculation by traders that dwindling supplies and rising local prices might prompt governments to restrict shipments,” IGC said. “Despite some beneficial rains, there was additional support from worries about an overly dry growing season in Australia.

“The IGC GOI wheat sub-Index was up by as much as 6% in mid-September, but amid general weakness in commodity markets, gains were eroded by the end of the month, leaving the index virtually unchanged,” it said. “Exporters in Ukraine were reported to have agreed to limit sales to around 4 million tonnes, with commitments already estimated to be close to that level. Despite official statements that no restrictions were planned, there was continued uncertainty about export controls in Russia.”

According to the United Nation’s Food and Agriculture Organization (FAO), in September, the benchmark U.S. wheat (No.2 Hard Red Winter, f.o.b. Gulf) averaged $371 per tonne, up 3% from August and 13% higher than in September 2011.

“Lower world production, following this year’s drought-reduced outputs in several major wheat exporting countries in the Black Sea region, has contributed to the strengthening of wheat prices while reduced supplies of coarse grains also provided support, especially to export prices of feed wheat,” FAO said.

“International traders closely monitored buying activity for signs that Black Sea availabilities were tightening, with results of tenders by Egypt’s GASC given particular scrutiny,” the IGC said. “These showed higher prices and reduced volumes of Russian wheat for shipment from mid-November, with a tender for early December filled entirely with E.U. supplies. As of Sept. 27, nominal Black Sea milling wheat export prices were up $35 m/m, to $345 fob.”

In an update on the Russian grains sector for October, the USDA attaché in Moscow noted that Russia’s traders had “continued to export massive volumes of grain through mid-September, and this despite the smaller crop, rapidly increasing domestic prices and tightening grain stocks in the Southern and North Caucasus Federal Districts.”

The report cited customs data showing that Russia had exported 3.88 million tonnes of wheat in July-August, 2012.

“In September, exports have continued at a fast pace,” the attaché said, quoting industry analysts who put September wheat exports out of Russia at 2.6 million tonnes. “Due to skyrocketing domestic grain prices, Russian wheat is becoming less competitive in world markets, and this is expected to result in a slowdown in wheat exports in October. The price of 4th Class wheat in the port of Novorossiysk, Russia’s major deep water port in the Black Sea, reached 11,200 rubles ($355) per tonne on Sept. 24, the highest price in the last 20 years.”

At those levels, traders would be making a small margin, or even taking a loss, to fulfill previously concluded export contracts, the report cited industry analysts as saying.

It doesn’t look like the Southern Hemisphere will come to the market’s rescue.

“Below average rainfall in the key wheat-producing regions of Western Australia, Victoria’s Mallee region, and the Riverina region of New South Wales has negatively affected yield prospects. Consequently, our estimate for Australia’s 2012-13 wheat production was reduced from 26 million tonnes to 24 million tonnes,” a recent attaché report said. The same report gave a figure of 27.4 million tonnes for the previous year’s crop.

“Australia’s 2012 wheat harvest has just begun; a more robust assessment of the crop size will be possible in December after the crop has been fully harvested.”

Chris Lyddon is World Grain’s European editor. He may be contacted at: [email protected].