12-19-2012 02:06 PM
Southern Russia and Ukraine entered the winter much like the Southern Plains - dry. The struggling wheat is now uncovered and subject to current low temperatures and there are reports of winter kill already. This sets up the possibility that exports next year will be small due to deterred planting and winter kill - and low stocks from the current year. Most of this area can be planted with spring crops if moisture is available but the yields are much lower. Analysts are also saying that on reduced acres the government is forecasting higher yields which they think is 'overly optimistic'. Already there is speculation that before the current market year is over wheat will be over $400 a ton in Russia. This will pull in wheat from Kazhakstan and other neighbors.
Wheat is the most global of all grain commodities though it is my observation the location of surpluses is more important than the overall amount grown in a year. If China has a big crop then it adds to its inventory, which is huge, that is unlikely to ever be exported to a deficit country in significant amounts. Same w/ India though they have finally reached saturation for storage and are in fact exporting some. If several traditional wheat exporting countries have poor wheat crops the restraints on trade can be significant.
The question is, what will be the ramifications if both the Black Sea region and the Plains have poor wheat crops? First, having low stocks in Russia at the end of the current marketing year would mean they would likely rebuild buffer stocks in addition to normal usage, reducing further than normal the amount of 'free stocks' for export next year. The US is fortunate to always have 'free stocks' domestically but the amount available for export could be limited more than usual and there could be demand increase if there is another small crop around the Black Sea.
The threat to US production is real but moderate in the larger picture of global trade (unless you happen to be an affected farmer). The Black Sea region has proved that it can only be an intermittant supplier. The years of bumper crops are followed by years of limited production. This isn't going to change much in the future - in fact, some prognosticators have suggested global waming might increase the liklihood of more severe dry spells in the interior.
12-19-2012 07:35 PM
The FOB was 9.11 for the SRW. Some are expecting Egypt to come right back in for more. I'm going to guess this establishes a bottom for SRW (and SWW) and HRW based on physical purchases. Further I expect other buyers to pick up on the que and purchase also, figuring the same thing. Too many questions on the horizon for next crop year to expect a better deal now.
12-20-2012 09:45 AM
1) It is too early to write off Black Sea, Ukranie etc winter wheat.
2) US situation is improving. WX is a moving target. It is rare there isn't some worry
at some point every YEAR!
3) The prices of wheat is WAY over the cost of production. Capital is MOVING to produce more.
Wheat has been in a bear market for a year, be objective or pay the price.
12-20-2012 11:19 AM
Wheat's been in a bear market for a year? You've either had some hellacious vacations or been unconscious at times.
Maybe only my market presented a number of opportunities to sell @ $9.00+ for soft. I sold the previous year's crop and improved on the $6.80+ available previously.