Last week, the nearest delivery Russian 12.5% wheat price was estimated at $294-298/mt, down from $300-303/mt a week earlier, according to SovEcon’s assessment. FOB prices fell below $300/mt for the first time since August 2021. Russian prices are declining amid strong competition with other exporters.
Russian wheat prices are tracking the downtrend of global wheat markets. Since February 14, CBOT prices have fallen 12% to the level of $6.95/bushel ($255/mt), and MATIF prices have fallen 10% to €271/mt ($289/mt).
The key driver behind the recent sell-off at CBOT and MATIF is the expectation of Black Sea corridor renewal. In our view, the chance of extension is high, especially after Beijing supported it in its statement released on February 24.
Hedge funds are most likely selling wheat aggressively in recent weeks. Private estimates suggest that the current net-short position is at 100,000 contracts compared to 72,000 in mid-February, according to the CFTC.
The Australian wheat crop is getting bigger. On March 7, the Australian Bureau of Agricultural and Resource Economics (ABARES) increased its estimate of 2022/23 wheat production to a record-high 39.2 MMT from a prior estimate of 36.6 MMT in December. In 2021/22, Australian wheat exports reached 36.4 MMT.
Russia is currently shipping its wheat at a record pace. In January-February, Russia exported 6.7 MMT compared to 4.3 MMT last year.
In the short term, Russian FOB prices are expected to decrease further as the country needs to regain its competitive edge. Russian wheat needs to be $5-10 cheaper than EU wheat. However, the downside potential appears limited. It is challenging for Russian exporters to pass on lower export quotes to the domestic market as farmers remain reluctant sellers.
We also believe that current global wheat prices are at a fundamentally low level. Global wheat S&D remains tight, and there is an elevated risk of export disruption in the Black Sea.
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