As of Oct. 1, 90 percent of the world’s 2018/19 marketing year wheat production will have been harvested. Market analysts have a relatively good estimate for 2018/19 world production and use. Yet, there is a lot of uncertainty about Russian wheat production, quality, and exports.
The Northern Hemisphere wheat harvest is complete, except for a small percentage of Canadian and Russian wheat. In the Southern Hemisphere, Australia’s t harvest will begin mid- October and Argentina’s harvest will begin mid-November.
Recently, some market analysts lowered Australia’s wheat production to 701 million bushels, down from 783 million bushels last year. Their five-year average production is 914 million bushels. The market’s reaction to Australia’s lower wheat production expectations was minimal.
On the other hand, when it was announced that Russia may place a limit on wheat exports, KC December wheat contract prices increased about 35 cents. When the rumor pertaining to limiting exports was dispelled, wheat prices fell.
Since mid-June, KC wheat contract prices declined from $5.90 to $4.94, went back up to $6.14, and then back down to $5.02. At this writing, the KC December contract price is $5.26. Changes in Russian wheat production and export expectations may be the major reason for the $1.12 price change.
Russian 2018/19 wheat marketing-year production is projected to be 2.6 billion bushels, compared to 3.1 billion bushels in 2017/18. The 500 million bushel reduction in 2018/19 production compared to 2017/18 production, was partially offset by a 150 million bushel increase in beginning stocks.
Reports indicated that for the 2017/18 marketing-year, the quality of Russian wheat was excellent (60 pounds-plus for test weight, and 12.5 percent average protein). Early reports indicate that average test weight and protein levels for the 2018/19 Russian crop are lower than for the 2017/18 crop. Wet conditions at harvest resulted in some sprout-damaged wheat. Lower production and quality should result in a reduction in Russian exports.
A TRANSPORTATION ADVANTAGE
2018/19 world wheat exports are projected to be 6.665 billion bushels, the same as during the 2017/18 marketing-year.
Russian 2018/19 wheat exports are projected to be 1.286 billion bushels, compared to 1.522 billion bushels during the 2017/18 marketing year. The projected 236 million bushel decline in Russian exports opens the door for increased exports from Argentina, Australia, Canada, the European Union, and the U.S.
One reason Russia dominates the wheat export market is that it has a transportation advantage to North African and Middle Eastern countries. These two regions import 25 percent of all world wheat.
The only transportation advantage that the U.S. has over Russia, or any other exporting country, is to Mexico. U.S. shipping costs are competitive with other exporters for delivering wheat to Japan and other Pacific Rim Countries. Argentina has a competitive advantage to most of the South American countries. Still, Venezuela imports Russia wheat.
PRICES MAY STABILIZE
One last point on world wheat exports: Russia, the Ukraine and Kazakhstan are projected to export 33 percent of the world’s wheat. Nineteen percent of world exports are projected to be from Russia.
The odds are that Russia will limit wheat exports. What is known is that Russian exports will be less than last year, and world exports will be nearly the same as last year; thus, exports will be higher for the other exporting countries.
When Russian wheat quantity, quality, and amount available for export are known with more certainty, U.S. wheat prices may stabilize — and possibly gain back the $1 that was lost.