Black Sea wheat prices hit $325 and SRW – $8, is the rally over?

The market hit fresh highs with support of stronger global benchmarks, big tenders, and sluggish exports. But how sustainable is this rally?

Last week, 12.5% wheat prices in deep-sea Russian ports rose $9 to $325/mt, a new high since 2012/13. The market is supported by higher global benchmarks, big tenders, and sluggish exports.

Wheat in Chicago and Paris rose 1-2% last week and rally hard today, adding 2-3%. Hi, $8 wheat! The market is supported by recent large tenders. Last week, Egyptian GASC bought 360K of wheat, on Monday Saudi’s SAGO bought 1.27 mmt. GASC is holding another tender today already.

Russian wheat exports remain sluggish. We estimate October exports at 3.4 MMT, -26% YOY and the lowest volume since October 2016.

We have been fundamentally bullish since late summer and had a target of $320-330/mt for the nearest Black Sea wheat in the current season. The target has been reached even earlier than we were expecting, we thought that the market could hit this level only in 1Q 2022.

The current price level starts to look a bit high from a fundamental point of view. At the same time, we know well that the market can act irrationally or perhaps even start to panic, especially when it’s a market with relatively inelastic demand and there is still a lot of liquidity globally.

We believe that there is a good chance to see even higher prices later in 2021/22,  i.e $350+/mt 12.5% Black Sea wheat and $8.5/bu SRW. However, the reversal could be quite sharp as fundamental factors are becoming bearish in our view. 

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