The global wheat market remains lifeless, and the longer-term mood is bearish, as rising Russian exports, increasingly aggressive Black Sea export pricing, surplus global stocks, waning international demand and the prospect of another massive crop in Russia this year drive global wheat values to their lowest level since the second half of 2020.

The IKAR agricultural consultancy reported the price for Russian 12.5 per cent protein wheat scheduled for free-on-board (FOB) delivery between late March and early April closed the week ending February 23 at US$215 per metric tonne, down US$4/mt from the previous week.

Respected Black Sea analyst Sovecon saw values for the same wheat class in the US$216-220/mt FOB range, down from US$218-224/mt a week earlier, the price varying according to loadport. But over the past couple of months, regional operators have consistently called the market much softer than those quoted by official subscription services as Russia searches for demand to keep the hard currency rolling in and clear storages for another big crop.

Out of the blocks last week, 12.5 per cent protein wheat was reported to have traded at US$210/mt FOB, and by last Friday Russian offers for 11.5 per cent and 12.5 per cent protein wheat were believed to be as low as US$201/mt and US$206/mt, respectively, on a FOB basis out of the Black Sea deep-water port of Novorossiysk, having reportedly traded a day earlier at US$200/mt and US$205/mt. That constitutes a fall of around US$40/mt for Russian 12.5 protein wheat out of Black Sea ports since the beginning of January. Nevertheless, Sovecon suggests that Russian prices must go even lower to compete with European wheat.

The Euronext Paris (MATIF) March milling wheat futures contract plunged €8.00 on Friday to close the week at €182.75/mt. This is the lowest close for the front-month contract since August 2020, after going as low as €181.50/mt in intra-day trading. The contract was down €23.75/mt last week and has now lost €39.75/mt, or 17.9 per cent, in the first two months of the year after closing out 2023 at €222.50/mt. This does beg an interesting question: is the MATIF price action a reflection of what is happening in the Russian wheat market, or is it actually leading it lower?

Official Russian port data put grain exports in the week to February 25 at 1.03mmt, down from 1.2mmt a week earlier. This included 0.87mmt of wheat down from 1.12mmt in the previous week. The pace was stronger than expected, leading Sovecon to increase its Russian wheat export estimate for last month by 0.5mmt to a new February record of 3.8mmt. This betters the previous February record of 3.6mmt set in 2021 and compares to 4.0mmt a month earlier, 3.0mmt in February last year and the monthly average of 2.6mmt.

Lower domestic prices and a weakening ruble (RUB) have enabled the Russian exporter to buy demand, with the Sovecon reporting that the price of Russian wheat stood at 10,475 RUB/mt last week, the lowest since late in the 2022/23 season. The exchange rate at the end of last week fell to 91.64 RUB/US$, down from 93.06 RUB/US$ a week earlier which was the highest it had traded since December last year.

Sovecon is currently projecting Russian wheat exports of 48.6mmt for the 2023/24 season (July to June), 3.6 per cent ahead of its final 2022/23 number of 46.9mmt. Sovecon noted that while it expected Russian exports to rise further in the short term, it believed that the market could be too optimistic about total 2023/24 shipments and needs to properly price in existing bottlenecks.

On the other hand, the Russian Grain Union see continued wheat export growth and has increased its export estimate to 55mmt despite Moscow implementing an export quota, which came into effect on February 15. IKAR is currently taking the middle ground, recently updating its 2023/24 wheat export estimate to 52mmt.

The quota for grain exports from the Russian Federation to states that are not members of the Eurasian Economic Union will be valid from February 15 to June 30, 2024. It is currently set at 24mmt collectively for wheat, corn, barley and rye without specifying a breakdown by individual crops. However, with record stockpiles across the country, the Ministry of Agriculture of Russia has proposed adding another 4mmt to the grain export quota, taking it to a total of 28mmt by season’s end, but the resolution is yet to be ratified by the Cabinet of Ministers.

In its February global supply and demand update, the USDA added 1mmt to Russia’s January wheat export forecast, landing on 51.0mmt. This is 3.5mmt higher than its 2022/23 export number of 47.5mmt, but 18mmt higher than the 2021/22 season when the USDA pegged wheat exports at 33mmt.

According to export data analysed by the Russian Grain Union, total 2023/24 season grain exports executed before the export quota commenced last month came to 42.7mmt, 35.35mmt of which was wheat, 4.2mmt was barley, and 3.16mmt was corn.

On the new crop production front, weather conditions have been improving over the past couple of months, and in the absence of any severe weather anomalies, Russian wheat yield prospects remain bountiful. Normalised difference vegetation index data (NDVI), an important measure of crop health, is at one of the highest levels in the past 20 years. Soil moisture reserves across most of the winter and spring crop areas are reported as adequate for this time of the year, and production models are currently projecting yields above those of the 2023 harvest.

Thanks to an abundant snow cover, the first severe cold snap of the season reportedly passed without serious consequences for the winter crop outlook. Soil temperatures at the depth of winter remained above critical levels in all major grain-growing regions, even when the ambient air temperatures dropped below minus 30 degrees Celsius.

Sovecon recently adjusted the lens on the nation’s new crop outlook increasing its 2024/25 wheat harvest estimate from 92.2mmt in January to 93.6mmt last month. This is fractionally higher than Sovecon’s final 2023/24 production number of 92.77mmt, and if it comes to fruition, the 2024 harvest would be second only in size to the 2022/23 crop, which Sovecon called 104.2mmt.

As long as the northern hemisphere weather remains favourable for winter and spring crop production this year, Russia’s grip on the global cash wheat market will continue unchanged through the boreal spring and the bearish tone will likely persist into the new crop harvest. However, a different wheat market landscape may emerge if the northern hemisphere weather turns adverse and the production outlook deteriorates in one or more jurisdictions.

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