November 17, 2022
Fresh on the news that the Black Sea Grain corridor deal has been extended for another 120 days, Chicago wheat futures dug in its heels and continues to hold on to the $8.00 price support area. News of the grain deal extension being inked ahead of the November 19 deadline could have sent prices plunging lower, but instead, only a retest of recent support was the only thing to be found. Perhaps the fact that Putin today continued to bomb parts of Ukraine reminds us that while the grain corridor is open, the war continues around it.
For now, the market is back to trading actual wheat market fundamentals. And the stark reality remains that ending stocks in the United States are cut in half from just a few years ago and global ending stocks of wheat continue to trend lower as well.
Global demand remains strong
Global demand for wheat remains strong, especially with this week’s news that there are now 8 billion people on this planet! Export sales in the United States are progressing along as expected, with a nice announcement that 150,000 tonnes of hard-red spring wheat was sold to Iraq.
It is interesting to note that because of the Russia/Ukraine war and due to adverse weather around the world for the past two years, that global production of wheat has not kept up with demand.
Thankfully, the world had a large buffer of ending stocks supplies to lean on. But going forward, some of that ending stock buffer is again in question as Mother Nature continues to be relentless with wild weather.
Global production not perfect
While Australia was on the verge of a record crop, now it is said that Australia's large crop has lost nearly 30% due to heavy rain causing flooded fields, sprout damage, quality issues, and now even some grain storage facilities are said to be underwater!
Over in Argentina, the wheat crop has been compromised due to drought. Their wheat crop is said to now be closer to 10.0 mmt, versus last year’s production number of 22.1mmt. Currently the USDA has Argentina production pegged at 15.5 mmt. I look for the USDA to lower the Australian crop number in the December USDA WASDE report, which will likely bring global carryout down a notch, too.
With the war in Ukraine, they will not be able to produce their normal amount of wheat. Ukraine's ag ministry estimates winter wheat seedings were reduced from last year's 6.5 million hectares to 3.7 million this season. While production in Russia is said to be higher, it is not enough to offset lower production in the rest of the world. And don’t forget, here at home the drought continues in the Plains.
Bottom line, wheat prices are on long term support prices, and unless Mother Nature suddenly blesses the world with “perfect weather” and unless the Ukraine war suddenly stops tomorrow, $8.00 wheat might be a global bargain for end users.
Reach Naomi Blohm at 800-334-9779, on Twitter: @naomiblohm, and at [email protected].
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