Threat of Russian export limit supports wheat

We are in an unusual situation where durum cash prices are lower than spring wheat values.

Both are at attractive levels because of the U.S. drought and a smaller Black Sea wheat crop. Indeed, the Black Sea situation might be the best hope for a new rally in a grain market that appeared to run out of steam last week.

Analysts downgrade on a weekly basis their estimates of the Russian wheat crop as harvest results come in.

Analyst SovEcon on Aug. 20 pegged it at 39 to 41 million tonnes, down from 40.5 to 42.5 million the previous week and smaller than the disastrous 2010 crop that sparked the government to halt exports for a year.

Russia is eager to enter the World Trade Organization and is unlikely to repeat its anti-trade policy of stopping all wheat exports. However, officials last week hinted at “pinpoint interventions” that it might use to influence exports.

SovEcon said Russia would run out of exportable surplus by November at the current rate of shipments.

Traders in Turkey, which also has a disappointing wheat crop, are speculating that the Russians will introduce an export tax in September and a ban in November.

Many analysts expect that Ukraine will also limit its exports if Russia acts. If it does, it would support the price of all wheat crops, including durum.

But for now, the revival of North American durum production has that crop under some pressure.

Cash bids for October delivery at a North Dakota elevator for hard red spring wheat Aug. 20 were $8.33 US per bushel and milling durum was $7.75.

At ICE Futures Canada on Aug. 20, the lightly traded milling durum December contract was at $303.70 Cdn per tonne, a slight premium over the milling wheat December contract at $298.60.

The CWB’s Pool Return Outlook pegged No. 1 durum at port at $334 per tonne, a little lower than the No. 1 hard red spring PRO of $342.

The U.S. Department of Agriculture pegs that country’s durum crop at 2.34 million tonnes, up from the disastrous 1.36 million last year because of excess moisture but still down from 2010 and 2011 when 2.9 million tonnes were produced.

Statistics Canada released a crop forecast Aug. 22, after this column was written.

However, in a pre-report Reuters poll, analyst estimates ranged from 4.6 million tonnes to 5.1 million to average 4.8 million. That would be up from last year’s 4.17 million.

The extra North American production will more than make up for a smaller European crop, but even crops there are not as bad as forecast earlier.

French forecaster Strategie Grains last week raised the European Union durum crop to eight million tonnes from 7.8 million in July.

The total is still down one percent from last year.

The CWB expects robust demand for durum but notes the economic turmoil in the EU has put the euro under pressure.

A weaker euro increases EU export competiveness and has the potential to reduce EU import demand.

The fairly dry summer in the southern Canadian Prairies and North Dakota and the early harvest should mean a high protein crop with narrow protein spreads.

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