Andrey Sizov
23.08.2021
Last week, 12.5% wheat prices in Russian deep-sea ports rallied further, by $13 to $299/mt supported by firmer ruble prices. Earlier rally in the global benchmarks also helped. Closer to the end of the week many buyers started to lower bids hoping that the ruble market could reverse soon.
December wheat in Chicago and Paris lost 4-6% WOW. September French wheat rallied 7.5% to €273/mt. September-December Matif spread fell to -€29 from +€2-3 in less than two weeks. Seems that many market players were short in the futures’ or in the physical European wheat market. Buyers struggled to find wheat for the nearest delivery.
Apart from the September Matif rally, we’ve seen mainly bearish news this week. The weather improves in the US Midwest, US Profarmer tour reported good corn yields implying a total crop of 2% higher compared to WASDE.
The wheat market, perhaps with some of our help, started to realize that the shocking WASDE number for the Russian wheat crop (72.5 mmt) could be too low. The most recent SovEcon estimate is 76.2 mmt (inc. 0.8 mmt in Crimea).
In the ruble market, 12.5% wheat bids in deep-sea ports climbed to 17,500-17,800 rub/mt during the week (USDRUB = 74.4). However, by the end of the week traders started to lower bids which moved to 16,900-17,000 rub/mt range compared to 16,500-17,000 rub/mt a week ago.
Some large domestic processors after accumulating grain stocks started to lower bids in the second half of the week as well.
Farmers remained slow sellers. However, some of them will need cash soon to purchase ag inputs or pay debts which could force them to increase supply.
At this stage we expect the market to continue to move north until we see substantially lower FOB values and/or significantly higher export tax rate. Bear in mind that wealthy Southern farmers account for a very large share in total wheat crop (40%+) and the majority of them can wait for a long time before selling their crops.
The domestic market is expected to rise further short-term supported by higher FOB, perhaps at a slower pace.
