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Russia, Russia, Russia Dominates Wheat Market

Spring wheat harvest improves.

Another week of choppy price action with the winter wheat managing a slightly higher trade for the week, but Minneapolis losing another 25¢.

Spring wheat harvest has been better than expected and USDA estimated production higher than trade estimates, accounting for the pressure in spring wheat futures.

The Tuesday Supply/demand report was another bearish blow to the grain complex, mostly for corn and soybeans as USDA projected yields higher than expected, with production and ending stocks both greater than prerelease estimates.

For wheat, they left yields and production unchanged, but increased spring wheat imports and decreased exports, giving a net bump of 15 million bushels to end stocks of spring wheat; durum end stocks were increased 2 million and hard red winter wheat end stocks were increased 10 million. Soft red winter end stocks were down 7 million with white wheat down 20, making the total end stocks unchanged for the month.

World wheat numbers were about as expected with USDA increasing total production another 1.5 MMT to 745 MMT. However, end stocks were lowered 1.5 MMT to 263 MMT. Russian production was increased 3.5 MMT from last month to 81 MMT. That is up 14 MMT from the beginning estimates this spring. It is also up 9 MMT from last year, an impressive 12% over last year’s record crop. Russian exports are projected 16% higher than last year, up 4.5 MMT to 32.5 MMT.

Canada’s wheat production estimate was left unchanged from last month at 26.5 MMT, down 5 MMT from last year. Australia is projected to take a big hit in wheat production this year, with early estimates already down 35% from last year at 22.5 MMT (down 12.5 MMT). Australian exports are expected down 23% from last year at 18.5 MMT, which is also down 1 MMT from last month’s estimate.

Even with notable production declines in major world exporters (U.S., Canada, Australia), world wheat prices have felt the weight of the massive Russian wheat crop. Their values have steadily eroded as they aggressively bid for export business. No doubt we’ll feel that pressure throughout the marketing year.

That said, we still need to get through the Southern Hemisphere growing season, and both major producers, Argentina and Australia, are running into headwinds. Argentina has generally had a good start so far, but recent rains have created flooding and there is concern over losing acres.

But Australia has the opposite problem, with dry conditions since seeding hanging around and creating significant stress as the crop moves through the pollination stage. On top of that, they have had a series of freeze events that have also hurt the crop, and another freeze is forecast for the weekend. Production estimates are falling even further, with private guys looking at sub-20 MMT, a far cry from last year’s big 35 MMT. Already, the trade is factoring in much lower exports from a country that can really dominate in good years. Obviously, that leaves the door open for U.S. exports into important southeast Asian markets where we can be more competitive with Russia.

I think that most of the Russian pressure has been factored into the market, and seasonal lows were likely established in late August. The problems in Australia could well support wheat into early fall and perhaps beyond as Russia’s exports slow down in winter. Early October is often a seasonal high, and we’ll be watchful for signals in that window. But this year we could see a rally extend into midwinter or so. I don’t look for a bull market to develop simply because of the size of the Russian crop, but we could certainly move around in a wide trading range for the next few months.

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