Some modest changes that are starting to unfold in the global wheat market may help put a floor in prices.
This would deliver slightly higher prices than recent lows for our harvest this year.
One change is that sales to Egypt, the world’s largest importer, are probably about to restart.
Trade there has been closed down for some time because of a zero tolerance for ergot applied to all imports. That is an impossible benchmark to hit, and rather than risking having a distressed cargo with no home, traders have simply walked away from that market.
Egypt now needs wheat to prevent food shortages at excessive prices. The last thing the country needs is a hungry population being pushed to the limit.
Last week, the zero tolerance was removed, but testing will still be done on arrival, rather than at the port of origin. That may generate some issues for traders. Even though wheat was offered at last week’s tender, prices were high to compensate for the risk of rejection.
There is other demand coming from North Africa as well, with the EU making a 300,000 tonne sale to Morocco. That, combined with the offers to Egypt, was enough to see a modest lift in EU wheat futures last week.
We are also seeing a shift in India, where import tariffs on wheat are being removed. Last year’s production was down, and internal wheat prices have lifted.
China is another source of new demand. Their crop is projected to be slightly smaller this year and quality from their last crop is down, lifting demand for higher quality imports.
On the supply side, it looks increasingly like the Australian crop will be capped by being too wet in eastern Australia, and from frost damage in Western Australia.
That does not help us, but will prevent another significant upgrade in the size of the 2016-17 global crop.
On the negative side, Russia is cancelling its export tax on wheat, following a record crop that needs to be shifted.
There is a question mark over quality, but with such a large crop this year they will probably be able to meet milling standards on a reasonable amount of export tonnage. Russia should be more active in Middle East and North African markets, and possibly into India.
That will take up some of the slack from the EU and absorb some of the new import demand. At least those factors will prevent Russian wheat from flooding global markets, as would have been the case if the EU crop had not been pegged back.
There should be enough starting to happen to begin supporting wheat values, with the real prospect of price rises if this translates into increased export business for the US.