Russian wheat prospects drying up

Russia’s wheat exports continue to wither along with its drought-stricken crops.

In its last World Agricultural Supply and Demand Estimates report, the U.S. Department of Agriculture lowered Russian exports to 12 million tonnes from 16 million tonnes.

The USDA’s Foreign Agricultural Service issued a report last week saying that number should be dropped to 11 million tonnes.

The International Grains Council went one step further, lowering its forecast to nine million tonnes.

Some traders speculate that Russia may implement an export ban like it did two years ago, which sent wheat prices skyrocketing.

Mike Krueger, president of The Money Farm, a grain marketing advisory service located near Fargo, North Dakota, said a ban is a possibility but markets won’t react as violently as they did in 2010-11 because the circumstances are different.

“What they did two years ago was they not only banned additional export sales, they basically just said, ‘We aren’t shipping sales we’ve already made.’ That’s what really set the market on fire,” he said.

Countries like Egypt had to find new suppliers for millions of tonnes of wheat it had booked with Russia.

Krueger said it’s unlikely Russia will default on contracts again but it may well implement a ban or an export tax that could restrict its sales to six to eight million tonnes. In 2010-11 Russia exported a paltry four million tonnes of wheat.

That, combined with some other factors in the wheat and corn markets, would provide continued price support for the crop, potentially adding another $1 per bushel to today’s prices.

Russia’s ending stocks are forecast at nine million tonnes based on an 11 million tonne export program.

That would be significantly lower than they were in 2010-11 when Russia carried over 13.3 million tonnes of wheat.

Russia isn’t the only Black Sea exporter facing a wheat shortfall. Ukraine signed a pledge that it will give world grain markets two months notice before it introduces any grain export restrictions.

Krueger said the Black Sea wheat shortage is the number one issue in wheat markets today but it’s not the only attention grabber.

Western Australia has been stuck in a dry pattern as it heads into the critical stage of crop development in late August and September.

Traders are also keeping a keen eye on the U.S. corn crop, with some anticipating that the Aug. 10 WASDE report will show a two billion bushel decline from the July 11 report. That would be extremely bullish for feed wheat.

“I don’t think it has all been factored into the market,” said Krueger.

He thinks wheat prices can continue their upward climb if Black Sea exports turn out lower than anticipated, the crop in Western Australia continues to suffer and corn yields fall as much as some think.

Krueger expects global feeding will be down due to shrinking livestock herds but wheat feeding will be up over last year as a substitute for the short U.S. corn crop.

In its July 11 WASDE report, the USDA was forecasting a 16.8 million contraction in wheat used for feed compared to last year.

U.S. Wheat Associates thinks the new reality is that world feed wheat use will meet or even exceed last year’s record level. Feeding an extra 16.8 million tonnes is equal to removing a major exporter from the market.

“In 2010-11, the Russian export ban withdrew a comparable wheat supply from the market and sent prices sharply higher,” said the association in its Aug. 2 newsletter.

Like Krueger, USW doesn’t anticipate a huge spike in prices in response to increased feed demand because they are already at historically high levels. But prices will continue to be strong and volatile.

Growers in North Dakota, eastern Montana, parts of Minnesota and across Western Canada are well positioned to take advantage of huge crops and good prices.

“Canadian farmers should be in the driver’s seat,” he said.

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