The threat of Russia invading Ukraine supported wheat prices in recent weeks, but what happens to wheat’s value if Russia backs off?
As I wrote this Feb. 4, Russian President Vladimir Putin was in China to view the opening of the Winter Olympics. I’ve heard analysts suggest there won’t be an invasion while the games are on because Putin does not want to anger Chinese president Xi Jinping, who wants the world’s focus to be on his country for the event’s duration.
After that, who knows what will happen? Only Putin.
Read Also
Ukraine may disrupt wheat market
The EU is curtailing its wheat imports, forcing Ukraine to find new markets at a time of stagnating demand.
If there is no invasion and tensions ease, then the wheat market is back to tracking trade flows and watching the weather.
The wheat market is not being fed a rich diet of price-supporting news as is the oilseed market.
Soybeans and canola last week were buoyed on word that Brazilian forecasters slashed their expectations of the soybean crop because of drought and heat in southern areas and excessive rain in parts of the northern growing area.
The consultancy firm Cogo now pegs the crop at 125 million tonnes, down 14 percent from its initial forecast and Datagro estimated it at 130 million tonnes, down from 142 million in December.
Argentina’s Buenos Aires grains exchange cut its forecast for that country’s soybean production to 42 million tonnes, down from 44 million tonnes.
As well, palm oil hit a new record high on Indonesia’s export restrictions, making the usually affordable tropical oil more expensive than soy or sunflower oil.
Chicago March soy futures last week rose 5.7 percent.
Chicago March wheat, however, fell 2.9 percent, partly because Putin’s trip to China reduced the potential for an immediate invasion of Ukraine.
Another reason for the fall is the slow pace of American wheat exports, with only 57,000 tonnes in last week’s report, below the trade’s expectation for 200,000 to 675,000.
U.S. wheat exports so far this crop year are below the pace needed to hit the full-year forecast set out by the U.S. Department of Agriculture.
Andrey Sizov of SovEcon last week tweeted that the Russian wheat crop appears to be enjoying a beneficial winter so far with good moisture and no extreme cold. He noted SovEcon’s most recent forecast for the crop, now in winter dormancy, is 81.3 million tonnes, up seven percent from last year, but noted that looks “a bit pessimistic now.”
And on Feb. 4 news broke that Russia and China had agreed to several trade improvements that included China dropping phytosanitary rules on wheat and barley that allowed imports from only seven regions, none of which were Russia’s prime production areas.
Now China will import from all areas of Russia, meaning increased competition for North American and European wheat exports in that important market.
These factors weighed against wheat prices, but others have the potential to support them in coming weeks.
The U.S. hard red winter wheat belt remains very dry even with some moisture dropped by the major storm front that swept across the country last week.
The. U.S. National Weather Service’s three-month forecast for February through April shows an elevated possibility for dry and warm weather in much of the hard red winter wheat region.
The continuing La Nina in the Pacific supports the forecast for dry conditions in the southern U.S.
And drought is also a concern in North Africa, particularly Morocco and Tunisia, although Algeria has also experienced a dry trend in recent weeks.
The likely damage to yields raises the potential for increased wheat and durum imports for that region.
Wheat prices might also find support if the drought in southern Brazil and parts of Argentina continues.
Brazil has begun seeding its second corn crop, which is planted after soy harvest.
The second crop, known as the safrinha crop, accounts for about 70 percent of Brazil’s total corn production and when drought hit it last year, it slashed total production to 87 million tonnes from 102 million the year before.
The January USDA forecast for Brazil’s total corn production was 115 million tonnes, down from the December forecast of 118 million.
However, the threat to the safrinha crop might not be as severe as on first glance. It is produced mainly in the central-west parts of the country that have not suffered drought like the southern states of Rio Grande do Sul and Parana.
While we can only speculate on the coming safrinha production, we already know that current corn stocks in Brazil are getting tight because of last year’s small crop.
That means it might have to reduce exports in the next couple of months until the safrinha crop is harvested.
That might create an opportunity for increased American corn exports in the late winter and early spring that would support corn prices and perhaps spill over into the wheat market.
