Wheat price direction up in the air

Some make the case for lower prices due to overproduction, while others say that ignores strong demand for the crop

A Russian wheat analyst sees a bear market on the horizon due to overproduction while a Canadian analyst is slightly bullish for some types of wheat due to strong demand for the crop.

Andrey Sizov, managing director of SovEcon, a Russian agricultural consultancy firm, thinks wheat prices are going to fall.

He believes the only reason wheat hasn’t gone into full bear mode already is because it is being propped up by the suddenly surging United States corn market.

“If there would be no problems with corn with all the bad weather and storms, the wheat market should be substantially lower,” said Sizov.

That is because there is a bumper crop being harvested in Russia and good prospects in North America and Australia. Those crops will offset poor ones in the European Union and Argentina, the other main exporting regions.

He believes the corn market has been the driver of the wheat market and that the recent corn rally is running out of steam because the market has already factored in lower yields.

For instance, Allendale Inc.’s nationwide survey of producers calls for an average yield of 178 bushels per acre, down from the U.S. Department of Agriculture’s August forecast of 182.

That would result in a reduction in production of about 300 million bu. of corn.

SovEcon forecasts a bin-busting 82.6 million tonnes of Russian wheat production. Sizov thinks the USDA will adjust its 78 million tonne estimate substantially higher in its Sept. 11 World Agricultural Supply and Demand Estimates report.

“That should also help bears in wheat,” he said.

MarketsFarm analyst Bruce Burnett thinks Sizov is too focused on the supply side of the balance sheet.

He noted that there has been “pretty strong demand” for the commodity in markets such as Southeast Asia and Latin America.

China has also been buying large volumes of U.S. corn in recent weeks, which is propping up corn prices and helping underpin the wheat market.

“I’m maybe not as negative on wheat as Andrey would be,” he said.

Burnett doesn’t consider himself a full-fledged bull because it looks like there will be an abundance of global wheat production but he doesn’t think prices are heading down.

In fact, for certain types of wheat he is mildly bullish.

“We’re undervaluing protein in the North American markets,” he said.

December futures for Minneapolis wheat was trading at an 11 cents per bu. discount to Chicago wheat last week.

Burnett said that is not a sustainable scenario given the strength in spring wheat sales. About two million tonnes were exported out of North America in August, which is a “fairly robust” sales program.

“I don’t think the market is giving spring wheat, or hard red winter wheat, the kind of props they should be getting because of reasonably good export numbers for both crops,” he said.

He expects protein premiums to re-emerge largely from gains in Minneapolis wheat rather than losses in Chicago wheat.

Burnett also noted that while Russian wheat prices are lower than last year, they are higher than the last time there was a bumper crop in that country, which was two years ago.

“That makes me wonder a little bit about being too terribly bearish,” he said.

Ukraine is harvesting a disappointing crop and the government has set an export cap of 17.5 million tonnes on 2020-21 sales.

“It’s just another indication that supplies aren’t that great,” said Burnett.

Russia is going to be the go-to supplier of Black Sea wheat this year.

The only bear factor that gives him serious concern is Australia’s crop, which will hit the market in January-February.

The U.S. Department of Agriculture forecasts a huge rebound in Australian production to 26 million tonnes, up from 15.2 million tonnes last year and 17.6 million tonnes two years ago.

Australian exports are forecast at 17.5 million tonnes, which is nearly double the volume of each of the past two years.

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