There is an ever-so-slight bullish sentiment creeping into the wheat market, says an analyst.
Even as wheat futures prices fell in the past week, a few events happening around the world could help reduce the burdensome global supply of the crop, said Neil Townsend, senior market analyst with FarmLink Marketing Solutions.
One positive is the report out of Russia that it will likely have have less wheat to sell in 2017-18.
SovEcon has downgraded its forecast of Russian 2017-18 grain production to 109.5 million tonnes from 112.5 million tonnes previously. The crop harvested last summer was record large at 121 million tonnes.
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Of that, the wheat crop is forecast at 62.5 million tonnes, down from 73.3 million in 2016. It sees wheat exports falling to 24.5 million tonnes from 27 million in the current marketing year.
SovEcon said it downgraded its current forecast because it be-lieves there will be a shortage of rain in Russia’s southern regions from April through June, according to Reuters.
The market has already factored in a smaller U.S. winter wheat crop but some analysts also anticipate the smallest U.S. spring wheat crop since 1972.
Townsend expects Canadian spring wheat acres will also be down with an increase in Saskatchewan more than offset by decreases in Manitoba and Alberta.
Another bullish factor is that U.S. wheat has become competitive in world markets in the last few weeks, which should stimulate its exports and reduce carryout in that country.
U.S. wheat exports could pick up because wheat export programs are winding down in Australia and the European Union and the U.S. soybean export program is slowing down, making room in the export pipeline.
The U.S. Department of Agriculture reports that China’s 2016-17 wheat crop had serious quality issues.
Industry sources say that 10 percent of the crop may be spoiled and another 24 percent out of condition in four of its main wheat producing states.
That is causing a shortage of milling-grade wheat in the central and southern production regions of the country.
Sino Grain, a state owned grain buyer, bought the highest quality wheat at the start of harvest. What’s left on the open market is below the average grade.
Milling wheat prices jumped 10 to 12 percent between September and January and are as high as $11.37 per bushel in South China.
American, Canadian and Australian milling wheat can now compete in China even after paying a 65 percent out-of-quota tariff.
The USDA’s Foreign Agriculture Service expects China in 2016-17 to import four million tonnes of wheat, a 500,000 tonne bump from its January forecast.
Townsend said an extra 500,000 tonnes of demand doesn’t sound like much considering total world trade is estimated at 181 million tonnes in 2016-17, but it helps.
“It’s positive. I mean, we need positive things in the wheat market for sure.”
Reuters reports that Turkish buyers have put purchases of Russian wheat on hold due to political tensions between the countries. That could create an opportunity for Canadian wheat.
“Canadian wheat matches up really nicely with Russian wheat, so if they want to substitute one for the other I guess they could,” said Townsend.
None of the factors are enough to move the wheat market on their own but combined they could help boost prices, although by a modest amount.
“Wheat can go up 15 or 30 cents a bushel but it’s not going to be able to drive itself up $1 a bushel without a broader commodity rally,” he said.
Townsend expects global wheat stocks to be down three to four million tonnes when the USDA issues its first world supply and demand outlook for 2017-18 in May.
He thinks stocks would have to fall by 10 to 20 million tonnes to sustain a price rally.
