Tight Russian wheat crop not expected to boost prices

Two leading analysts believe Russia’s 2019-20 wheat supplies are going to be tight but that likely isn’t enough to reinvigorate international prices for the crop.

Early season drought followed by harvest rains resulted in the second-straight disappointing Russian crop.

The United States Department of Agriculture is forecasting 72.5 million tonnes of production, 34 million tonnes of exports and 7.3 million tonnes of carryout.

Andrey Sizov, managing director of SovEcon, a Russian agricultural consultancy, said that is a snug supply-and-demand forecast but he believes it will be even tighter than that.

He is forecasting 31.6 million tonnes of exports and a paltry 6.6 million tonnes of carryout.

Sizov said in an email there is a good chance the Russian government will at some point make an announcement that it is curtailing exports.

Bruce Burnett, analyst with MarketsFarm, is inclined to agree with Sizov’s assessment. He noted that the USDA dropped Russia’s total supplies by 3.37 million tonnes but only reduced exports by 1.85 million tonnes.

“It’s something that they’re going to have to adjust as they go through the year,” he said.

Burnett is a bit surprised with SoveEcon’s 6.6 million tonne ending stocks estimate.

“I think last year we came very, very close to as low a carryout as you can get in Russia,” he said.

One thing that worries him is the latest General Authority for Supply Commodities (GASC) wheat tender out of Egypt. Russia’s offer was about US$20 per tonne less than the same time last year.

“The prices in Russia aren’t indicating that the trade is expecting tightness at the end of the year,” said Burnett.

However, he said that might be a function of better crops in the European Union and the U.S., which are forcing Russia to be more aggressive in international markets.

Improved wheat production in the EU and the U.S. will likely prevent a price rally from occurring even when Russia runs out of exportable supplies.

The prospect for poor crops in Argentina and Australia won’t likely be enough to spark a rally unless either one turns into a complete disaster.

Next year’s Black Sea crop is already being put in the ground and Russian farmers are proceeding at a record pace.

“Russia is planting winter crops like wheat is $8/bu ($300/mt),” Sizov said in a recent tweet.

He said weather is allowing growers to plant the crop at a much faster pace in southern Russia compared to 2018, which was a record year for winter wheat acres.

Sizov doesn’t think the breakneck pace will be sustained.

“I believe at the end of the day we would see something close to the previous year or slightly below,” he said in an email.

“Based on trend yields and provided there are no weather anomalies like this June, we could see a Russian crop significantly above 80 million tonnes.”

That has only happened once in recent history, in 2017 when Russian farmers harvested 85 million tonnes of wheat.

Burnett said yields play a much bigger role than acres in determining Russia’s final production number.

He noted that back in January 2019 many analysts were forecasting that this year’s crop would exceed 80 million tonnes but the yields were disappointing.

Sizov said Ukraine’s seeding is slightly slower than 2018.

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