Analysis Grains
Market reacts limitedly to export quotas Russia
The export restrictions of Russia are not really affecting the wheat market yet. Instead, market players are more focused on yield expectations for Australia and the good condition of winter wheat in the US and Europe.
The December contract for wheat on the Matif closed €0.75 higher at €212.25 per ton yesterday. On the CBoT, wheat closed 0.1% lower at $5.36¾ per bushel. Corn lost 0.3% and ended at $4.23¼ per bushel. Unlike the grains, soybeans showed a slight increase and closed 0.7% higher at $9.91¾ per bushel.
The room for maneuver on the wheat market is limited. Russia has reduced the export quotas for wheat in the second half of the season. Consequently, the wheat supply in the world market would reasonably become tighter. This limits the potential for declining wheat prices. This week, the Ikar price for Russian wheat remained unchanged at $226 per bushel.
For the upcoming harvest, Russian wheat is not in a very good condition. 37% is rated as poor, marking the worst condition of winter wheat in ten years. The crop is vulnerable to frost damage due to its mediocre condition, as warned by various sources. Severe frost is not yet a major issue in Russia.
European exporters have not felt much impact from the export restrictions that the Kremlin is working on. So far this season, 9.48 million tons of wheat have been exported compared to 13.75 million tons the previous year.
Good position for winter wheat in the US
In the southern plains of the US, it is getting colder but not cold enough to cause winterkill in wheat. More importantly, there has been quite a bit of rain in the American wheat belt in recent weeks. This has significantly improved the condition of the wheat. In the largest wheat state, Kansas, 56% of winter wheat is rated good or excellent according to the USDA. Last week it was 55%, and at this time last year, 40% of the wheat was in good condition. Similar to Europe, the outlook for wheat for the upcoming harvest is relatively good.
Another factor putting pressure on prices is the expected wheat harvest in Australia. According to Abares, it is 20% above the 10-year average at 31.9 million tons. Harvesting is underway in Australia, and exporters could potentially offset some of the supply loss from Russia due to the good harvest.
Record price
In India, the season for grain growers is less favorable. Concerns are rising due to relatively warm weather about the potential yield of wheat and rapeseed. These crops are sown in India from October to December and require moderate temperatures for good yields. The wheat price in India reached a record high last week of 32,000 rupees per ton (approximately €360 per ton). Importing additional wheat could be an option to lower the wheat price in the domestic market. However, this is facing strong resistance from farmers. To address the high prices to some extent, India is releasing wheat from the intervention stock onto the market. However, this stock will need to be replenished at some point, and a moderate harvest does not help in that regard.
In Brazil, soybean farmers are ahead of schedule in planting. According to AgRural, 91% of the planned area is already planted. This is the highest percentage sown for this week since 2018. In most of Brazil, the outlook for soybeans is good, as noted by AgRural. Only in the state of Rio Grande do Sul is planting lagging behind, and the soybeans that have been planted are stagnant due to a lack of moisture.
