World wheat production is looking favorable

All eyes are on Russia’s wheat yields.

With the Northern Hemisphere’s harvest season moving forward, we have a clearer idea of the world’s wheat production.

The market will focus on Russia since they set world price, and we see yields improving and production estimates rising.

Private estimates are now hovering around 80 million metric tons (mmt), compared with SovEcon just last week at 79.3 mmt. and USDA last month at 76.5 mmt.

Even with better production, Russian FOB offers were steady/higher over the weekend, in a range from $212 to $214/mt. Russian exporters have adequate supplies but they have to source farther away than normal, increasing the cost of exports and thus supporting FOB offers and world prices.

We’ve already seen evidence of that with Egyptian purchases, over the last few weeks. Despite better financing arrangements that would decrease risk of doing business with Egypt, they are still paying increasingly higher prices. Last week, they purchased 470,000 mt. of wheat, 350,000 mt. from Russia and 120,000 mt. from Ukraine. They paid $217 FOB, $6 higher than the previous week.

We still have spring wheat harvest to complete, but market focus is shifting to the Southern Hemisphere.

At this point, we don’t see any major problems developing in either Argentina or Australia. In fact, with recent widespread rains in Australia, it could be setting up for a bin buster. After the last three years of short crops, it should have plenty of bin space.

I would expect wheat to trade in a range for the next several months, supported by the stable/higher world prices but kept in check by large Russian supplies, promising production from the Southern Hemisphere and huge U.S. row crop production. 

Wheat markets, last week, were generally lower as they chopped back and forth. We saw Chicago lose 8¢, Kansas City lost 7¢ and Minneapolis was down just 1¢. The spreads between the higher protein markets and Chicago gained slightly as a result.

Export sales have been stellar the past couple of weeks, with last week adding 677,000 mt. Solid world demand and the declining U.S. dollar have helped U.S. sales. Yet, we can expect competition will remain stiff through the marketing year.

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