International wheat markets rallied strongly last week encouraged by ongoing adverse weather that is destroying crops across eastern Europe. While it is hard to make a case on a fundamental basis that lost production will sustain current price levels, what the market is really worried about is the policy response in Ukraine and Russia.
If reduced European production leads to export bans then the global wheat market takes on an entirely different shape. Over the past two years, Black Sea exporters have dominated the global grain trade.
Already last week the Ukrainian Government has tightened quality restrictions on wheat exports. A key concern for markets is the summer grown corn crop. If this is decimated it will significantly reduce the amount of feed quality wheat available for export. Last year this feed wheat displaced US wheat and corn in Asian feed grain markets.
The lack of rain in WA is another emerging bullish story. Most of the WA wheat-belt has received less than 50% of growing season rainfall and without any soil moisture reserves this crop is now battling against warming conditions and a lack of available moisture. There is no rainfall forecast into mid-August and mean average yields will be hard to achieve without a dramatic turnaround in the season.
Producers in WA with forward sales commitments should be assessing their production potential on a worst-case basis to determine if they should be closing out of sold positions. It is often better to take affirmative action early in the season to limit potential hedging losses.