The fallout from the August USDA report continues, with wheat futures making new contract lows, and heading towards 400 US¢/bu.
On continuous charts, we are still above the lows seen in April this year, and about 50 US¢/bu above the lows seen at the end of August last year, which is assumed to be the long-term low since 2007.
The US wheat harvest is nearly finished, but wheat will continue to be pushed around by the US corn market in particular. There’s also the Canadian wheat harvest, and harvest is continuing in the EU and Black Sea regions.
EU wheat prices are under pressure from weaker global markets. The harvest in France is basically wrapped up, but bad weather has caused delays in Germany, Poland, the Baltic and the UK. The weather will also increase the percentage of feed wheat in the EU.
The big crop in Russia is forcing EU wheat out of key Middle East markets, with Russian and Ukrainian wheat about $10 per tonne cheaper than French wheat last tender. This will remain an issue for the next year, although logistics constraints will limit just how much wheat Russia can export. That in turn will continue to keep US wheat out of key Middle East and North African markets, and curb the expected rundown in US stocks this year. The problem with Russia not clearing their second record crop in a row is it will continue to hold stocks that will hang over the global market.
Wheat stocks in Australia and Canada will pull back this year because of lower production, so that will leave ongoing large stocks in the US and Russia to pressure wheat prices for the rest of this year, and into 2018.
US wheat stocks are falling this year, but they will remain at high levels. That leaves the global stocks problem being a problem of high stocks in China, the US and now Russia. Elsewhere, stocks are either declining or stabilising.
Major importers have also been reducing their stock levels over the last year. While Chinese stocks are not likely to influence global trade, Russian and US stocks (or supplies in total) will have a big impact on global trade and wheat prices.
While we have been waiting for US stocks to clear to allow a strong price recovery, Russian stocks need to deplete as well.
It looks as though we will have another year of low wheat prices, which will curtail any lift in production in the US, Canada and Australia. That will make the world even more reliant on Russian wheat supply to cover for supply shocks or lift in demand.
What happens in Russia and Ukraine is going to determine the extent of any price recovery in our post-harvest period next year. Early signs of a production issue should highlight the lack of wheat stocks elsewhere.
