In what may be a short-term shot in the arm for international wheat futures this week, Egypt has purchased their first cargo of US origin wheat since June 2010. Australia’s last wheat bought from GASC was also in the same tender. Since July last year, GASC has imported an estimated 4.6mmt of wheat, of this Russia has taken the lions share (70%), followed by Ukrainian (9%), Kazakhstan (7%), French (6%), Argentinean (5%) and Romanian (3%) origin.
Confirmed purchases since 2012 (475kt) has shown a more equal billing of sellers, with French wheat largely filling the void at 50%. Followed by Russian, Kazakh, Ukrainian and US which are all only around 12% each. Actually the three cargos of Ukraine wheat were later switched to Russian origin after ‘contaminated grain’ was found.
The winning US origin wheat was at a level well below both French (by over $20 FOB) and Russki wheat offers ($30 fob premium!). Due to stocks being located further upcountry and winter logistics woes, Russian FOB offers have not been competitive as they once were and thus export pace has slowed. Russia’s Ag Minister reported July-Jan cumulative grain exports at 20mmt (+80% from last year’s pace). However monthly exports are sharply dropping off from earlier highs, when the country was exporting close to 3mmt a month.
Earlier this month there was noise that Russians may put in place tariffs to stem the tide of high exports from the country. However the government raised the export limit to 27mmt, this is 4mmt higher then the original number first floated last October. Last years bumper grain harvest of 93.9mmt has stock still at comfortable levels.
Grain exports (July – Jan) from neighboring Ukraine are estimated at 11.6mmt. With some pundits already knocking off 50% from the winter wheat crop potential, in lieu of lack of snow cover/extreme cold combined with dry sowing period late last year. Because of aggressive wheat exports last year on the back of bumper harvest, grain shipments by rail have been suspended and the Ag minister is telling the trade to focus on corn, rather than wheat export sales. This may pave the way for future grain tariffs being implemented if the winter wheat crop doesn’t recover in the spring.
Ukrainian exports have only been free from tariffs for little over a month, as barley was taxed until the end of 2011 and corn/wheat tariffs were axed in October. Before last years harvest, quotas limited exports for seven months following the summer drought in 2010.
Wheat had previously declined 38c over the last four sessions, as the lead up and subsequent hangover from Fridays USDA report had the trade booking in short term profits. Prior to the report wheat had rallied 82c over ten trading sessions during the Jan/Feb period, before being curtailed by surprising higher world record wheat ending stocks (213mmt).
Current world ending stocks do look ugly, and there will be a lot of bearish news out there in the foreseeable future in regard to huge ‘intended acreage. However there are plenty of potential production hot spots that may flare up over the next couple of months. Drought is damaging US winter wheat for the second year in a row. Canadian prairies are extremely dry from a drought beginning last August. While the above mentioned Ukrainian situation may be a full-blown disaster. While Chinese production hasn't hit any head lines yet..!