There are signs that Russia is running out of exportable supplies of wheat and that should lead to futures market rallies and continued strengthening of basis levels in the coming months, says an analyst.
Bruce Burnett, director of markets and weather with Glacier’s MarketsFarm, keeps a close eye on wheat tenders from the General Authority for Supply Commodities, Egypt’s state grain buyer.
The latest successful Russian tender was for US$242 per tonne. That compares to tenders of slightly more than $200 per tonne at the start of the 2018-19 campaign.
“Those values have been steadily increasing here over the past number of months,” he said.
Egypt is also starting to buy wheat from other suppliers, such as the United States.
“Those are both indications that Russian supplies are starting to tighten up,” said Burnett.
The fly in the ointment is that there has been some talk that the Russian government will provide a grain transportation subsidy that will make it more economical to pull in wheat from areas of the country that are further from port position.
“If they don’t provide it, they’re going to start to be priced out of the marketplace,” he said.
As Russia curtails exports there will be more wheat from Australia, Argentina, the European Union and the United States entering the market, particularly in Asia. That will lead to a tightening in global supplies.
“We’re probably going to see the tightness of supplies push the futures levels higher,” said Burnett.
Justin Gilpin, chief executive officer of Kansas Wheat, said exports of U.S. wheat have been slower than anticipated.
In its December supply and demand report, the U.S. Department of Agriculture lowered its U.S. wheat export total by 25 million bushels with all of the reduction in the Hard Red Winter class. The class had “historically low” exports in the first half of the 2018-19 marketing year.
U.S. growers were expecting a strong export program with drought in Australia and a smaller Russian crop.
“There had been a building anticipation that the U.S. was going to regain some market share,” said Gilpin.
U.S. Hard Red Winter Wheat is price competitive in markets like North Africa and the Pacific Rim, so he hopes that sales will pick up in the second half of the year.
“There is still time. Maybe that business is going to come to the U.S. and Canada here in January, February and March,” said Gilpin.
Sales have been good for one class of wheat on both sides of the border.
“There has been strong demand particularly for spring wheats. That demand has been very strong relative to some of the other classes of wheat,” said Burnett.
Spring wheat prices are good and he believes further appreciation in futures prices and basis levels is possible as Russia’s export program subsides.
He thinks growers should consider selling when prices at the elevator are in the $7 to $7.50 per bushel range and he thinks they will “bounce around” those levels during the next two to three months.
But he wouldn’t be too eager to sell everything because prices could further appreciate heading into spring.
“I would not be an aggressive seller right now,” he said.
That advice comes with a caveat — by April or May weather in key wheat-growing regions will become the main driver in wheat markets.
There could be weather rallies or prices could drop if conditions are favourable. Most winter wheat crops in the northern hemisphere went into dormancy in good shape.
“If we do see a weather problem develop, then certainly wheat prices will react very strongly and very quickly to that,” said Burnett.