Weather problems in the former Soviet Union aren’t big enough to substantially change the large world wheat stockpile.
However, they are big enough to shove the market off its complacent bearishness about wheat availability, which has allowed wheat to close its gap to corn and soybeans.
“Instead of us having the expectation that world wheat supplies would stay relatively high, because of these production difficulties you’re going to see world wheat stocks start declining this year, after building up some fairly large stocks for the last two years,” said Bruce Burnett, Canadian Wheat Board crop surveillance and market analysis manager.
Read Also
Farming Smarter receives financial boost from Alberta government for potato research
Farming Smarter near Lethbridge got a boost to its research equipment, thanks to the Alberta government’s increase in funding for research associations.
Problems in the former Soviet Union have turned American traders positive about wheat, even though a billion bushel domestic U.S. carryover is expected, Brian Henry of Archer Financial Services said in a commentary.
“Basically, the production problems are going to allow the global wheat trade to make a significant dent in the global supply of wheat,” Henry said July 23.
“It should result in the U.S. becoming more involved in the export market.”
Dry, hot weather is roasting Russian, Kazakh and Ukrainian production prospects. An early Kazakhstan drought has continued and drought conditions have moved west and northwest across major areas of winter and spring wheat production.
Spring wheat production in Russia and Kazakhstan is expected to be most affected, with winter wheat in Russia and Ukraine doing better because it was well-established before problems struck.
Drew Lerner of World Weather Inc., who has analyzed weather impacts on world crop production for 31 years, described conditions in the region as “one of the worst droughts I’ve seen over there. I expect to see some pretty bad numbers out of Russia and the eastern part of Ukraine.”
Many analysts expected a developing La Nina to hurt Kazakhstan and
damage eastern areas of Russia and touch Ukraine, but the drought area has spread further.
“It has ended up affecting a larger proportion of more important crop country than we thought,” Lerner said.
The drought has helped kick up the wheat futures market, he added, allowing it to soar $1.20 per bushel.
However, Joe Victor of Allendale Inc. thinks there is more behind the rally than tight wheat supplies spooking commercial users.
“The funds saw what was cheap and bought it,” he said about commodity investment and hedge funds, which aggressively closed short positions and piled into wheat when it showed signs of turning around.
Funds are now net-long.
Burnett said the supply and demand situation hadn’t changed enough to justify a further rally.
“It has created a positive momentum for prices, but it isn’t something that will sustain us,” he said.
“There will have to be some other news to support this as we move through the year.”
That could come from crop production problems somewhere else, or even what Burnett humorously refers to as the “Crazy Ivan Scenario.”
That involves the Russian government deliberately doing something to slash its grain exports. Even Moscow acting to protect domestic users would lift the market.
“If they were to impose some export tariffs, that would limit their exports and that would be far more positive than remaining active in export markets at reduced levels,” Burnett said.
Henry said he sees reasons to be bearish toward wheat, so he is recommending farmers lock in some prices.
“Producers … have to take advantage of this rally,” he said.
“This is a great opportunity that seemed unlikely only a month ago.”
