Farmers shouldn’t hold their breath waiting for wheat markets to improve.
“For lack of a better explanation, these markets are going to look like a hockey stick,” said Errol Anderson, an analyst with ProMarket Wire.
“They’ll go down and stay down. We’ll see the long blade appear.”
Corn is already following that pattern, and Anderson doesn’t think wheat will go anywhere without the help of corn.
He doesn’t anticipate a turnaround until next year.
“In all honesty, in my head, I’m looking last half of this crop year. I think the first half is pretty much a writeoff. We’re not going anywhere,” he said.
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Russia and Ukraine are expected to flood the market with wheat directly off the combine.
“The global wheat competition coming from Black Sea is going to remain quite intense because they need money,” said Anderson.
“If Russia is being isolated, they’re going to have to move product.”
Chuck Penner, an analyst with LeftField Commodity Research, said Russia and Ukraine tend to push out a lot of grain right off the combine anyway, but this year the countries have extra incentive because of the threat of war and ongoing trade sanctions.
“With all of the uncertainty there, if stuff starts to get shut down, they want to have it out the door before that happens and they also have the incentive to try and generate foreign exchange,” he said.
Governments in both countries are bragging about how much grain they are exporting to assure buyers it is business as usual.
As well, there appears to be a lot of grain to move. The U.S. Department of Agriculture is forecasting 22.5 million tonnes of Russian wheat exports in 2014-15, which would be the biggest export program since the demise of the Soviet Union.
Ukraine is expected to ship nine million tonnes, which would be its fourth largest export program sine 1987.
Anderson anticipates Russian wheat will find its way to Egypt this year, which is a key market for U.S. wheat.
“If the U.S. loses that market to Russia, it’s just really not very good news,” he said.
Chicago wheat futures might get a bump if war breaks out in the Black Sea region, but that will be short-lived.
“My take on it is war is not bullish,” said Anderson.
He thinks the more likely scenario is that all commodities will be dragged down by looming deflation in Europe, which will drop the standard of living in that influential consumption region.
“With the deflationary slant on it, I just can’t get revved up because I think Europe is in trouble,” said Anderson.
