Crop buyers and futures traders appear to have decided they don’t need to worry about wheat supplies.
The U.S. hard red winter wheat crop might be badly damaged but that is already accounted for in the market.
Harvest in the southern Plains will soon begin and that always puts downward pressure on prices.
The North American spring wheat crop was seeded late but there is good moisture.
North American wheat prices had become too expensive relative to the competition’s product.
As of June 2, the Chicago wheat contract had fallen for nine straight sessions, the longest decline since 1998.
Wheat had fallen in 17 of the previous 18 trading sessions. July Chicago wheat fell 11.4 percent during May.
Black Sea wheat is still comparatively cheap and despite all the worries about the political situation in Ukraine, grain exports from that country and Russia are unaffected.
Concerns mounted early last week about lack of rain in some parts of Russia.
Indeed Thomson Reuters Lanworth, an agricultural forecaster, warned of drought conditions across Russia’s wheat belts, with soil moisture reserves falling to near or below record lows.
But other forecasters said the situation was much less dire.
Rain fell in some areas of Russia last week, reducing crop stress and the favourable outlook caused prices there to fall again.
Russia expects to export 25 million tonnes of grain during 2014-15, steady with the current crop year.
Russia’s agriculture minister last week estimated the wheat crop at 53-55 million tonnes, part of an overall grain crop of 100 million tonnes, up from 92 million last year.
The United States Department of Agriculture forecasts the wheat crop at 52 million tonnes and thinks exports will total 19 million tonnes of wheat.
Ukraine, too, is enjoying good growing conditions that could offset the reduced money spent on inputs.
The crop may exceed last year’s record output of 63 million tonnes, according to Ukraine’s state weather forecasting centre.
“So far, the conditions have been favourable, and if there is more rain in June, then I would call the condition as brilliant for further improvement of the crop size estimates,” a Kiev-based trader told Reuters.
Europe also has good growing conditions and an early harvest is expected.
Australia’s crop looks to be off to a good start and Argentina’s farmers are expecting to seed more wheat.
Brazil, a major wheat importer, has a better crop this year and might need to import less.
China expects to harvest a large, quality wheat crop.
So expect continuing pressure on wheat prices as long as weather remains favourable in most important growing areas.
What issues, if they develop, could change the situation?
- A return to dry conditions in Russia.
- If cool weather continues and delays North American spring crop development, early frost would then pose more of a threat.
- If a severe El Nino develops along with the negative phase in the Indian Ocean dipole, it could lead to drought in Australia and India.