Wheat pricing needs to wait

The best wheat prices will likely occur in the second half of the 2018-19 marketing year, say analysts.

A rumour surfaced on Aug. 17 that Russia’s agriculture ministry was considering curbing exports once they reached 30 million tonnes.

That caused a spike in international wheat prices, but prices quickly came back down after Russia’s agriculture minister denied the report.

“So far there is no basis for the introduction of a grain export duty. The current price is not extraordinary,” Dmitry Patrushev was quoted as saying in a Reuters story.

“I repeat it again, the introduction of grain export duty is not planned so far.”

Bruce Burnett, director of markets and weather with Glacier FarmMedia’s MarketsFarm, believes export restrictions are a distinct possibility.

“Usually with Russia, where there’s smoke there’s fire, so I think they’re certainly contemplating it,” he said.

Burnett thinks growers should hold off on pricing their wheat because prices will take off if Russia implements export restrictions.

“You can afford to wait a bit because there’s some bullish undercurrents here,” he said.

Dave Reimann, market analyst with Cargill, agrees with him.

“I think that there’s certainly some better odds longer-term for wheat in the second half of the year,” he said.

Reimann believes prices will improve regardless of whether Russia puts restrictions in place.

“Even if they don’t, it is quite likely that we will see a decreased amount of selling coming out of the Black Sea in the second half of the crop year,” he said.

“In that regard, either way there is likely to be some diminished competition.”

Cargill’s MarketSense service has advised its customers to be 50 percent sold on wheat, locking in prices during spikes in the summer months. That will generate the cash flow they need to wait for better prices in the second half of the crop year.

“That’s an old standby, but it really pays off in years like this,” said Reimann.

He doesn’t know how far prices will rally. Rather than trying to figure out the peak, growers can use a put option to establish a floor price while participating in any upside to the market.

“We try to take the predicting out of it,” said Reimann.

One of the reasons Burnett believes export restrictions will be implemented is that Russia’s livestock producers have the ear of President Vladimir Putin. If they become concerned about dwindling wheat supplies or rising prices, they will pick up the phone.

The U.S. Department of Agriculture is forecasting 68 million tonnes of Russian wheat production, down from a record 85 million tonnes last year.

Burnett said rumours of export restrictions are bearish in the short-term because it makes Russian exporters nervous. They are trying to push as much wheat as they can out the door before there is any kind of government interference.

And they have a willing buyer in Egypt, which has had some production problems. It is purchasing a lot more wheat earlier than it usually does.

If the Russian government takes steps to cap exports at 30 million tonnes through punitive duties or an outright ban, it would elevate international wheat prices.

The USDA is forecasting 35 million tonnes of Russian exports, so markets would have to find other suppliers for about five million tonnes of wheat.

That may prove to be a difficult task because Australia’s wheat crop is in trouble and the European Union’s crop has been reduced by drought.

Burnett believes Russian wheat exports will remain brisk right through March 2019 and then taper off in the April-June quarter.

That’s when Canadian growers could see some rising wheat prices, so they might want to hold off on pricing their wheat directly off the combine.

The last time Russia implemented export restrictions was 2010-11. The country shipped out a paltry four million tonnes of wheat that year, causing a massive run-up in wheat prices.

Burnett said the situation this year is no way near as dire. A 30 million tonne export program would still be the third highest on record.

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