Russian wheat output shocks markets

Russian wheat farmers have been partying this year, and the world market is likely to be nursing a hangover for two years, say analysts.

The massive size of the Russian wheat crop not only pushes their grain exports to the limit for this year but will leave huge stockpiles for the 2018-19 crop year.

“With a crop of this size, it just means that they’re going to be a market presence 365 days of the year,” said Neil Townsend, analyst with FarmLink Marketing Solutions.

Russia is stunning world markets with a crop estimated at 81 million tonnes, which is eight and a half million tonnes more than last year’s crop of 72.5 million, and part of a rising tide of Russian wheat production that began in 2013.

Russian wheat usually hits the market hard at harvest time and then peters off, leaving the market in a more balanced situation for other exporters.

However, Townsend thinks the enormous size of the Russian crops mean it will pour out at maximum volume all crop year long.

Its exports are predicted to rise by about only five million tonnes, to 32 million tonnes, which is being seen as a statement about Russia’s ex-port grain logistics capacity.

“That’s probably max,” said Mike Krueger of the Money Farm in Fargo, North Dakota. “They’re going to build ending stocks, probably quite significantly.”

That’s what will create the hangover effect for Canadian farmers. Not only will the Russian crop depress the wheat market now, but it will continue to depress it through the winter and into 2018-19.

This situation eliminates most hopes that smaller crops in the U.S. and Australia, as well as quality problems in Poland and Germany, would offer Canadian farmers better overall wheat prices.

The summer rally in wheat prices now appears to have been a bear market rally rather than a reversal out of the bear market into a stronger market.

However, prairie farmers with good protein and good quality will still probably benefit from fat spreads that arose this summer as spring wheat crops came under drought stress.

“I think we’ll maintain that spread,” said Krueger.

Townsend said it is unfortunate that Canada’s spring wheat crop appears to have gotten bigger but lower in protein and quality than it earlier seemed to be.

“We thought that we were producing a crop that was much more special,” said Townsend.

“Now we have a crop that looks like it’ll be in direct competition with Russian wheat.”

Krueger said the Russians will probably dominate the North African, West African and southern African markets.

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