Global wheat market: Wheat good yield hit a record low, support wheat prices higher

Global wheat prices were mostly higher in the week ending November 4, 2022. Markets gyrate early this week on news of Russia's suspension of participation in the Black Sea deal. A prolonged drought in the U.S. winter wheat-producing region has reduced the yield to a record low for the period, drought in Argentina has cut wheat production by an estimated 40 percent year on year, and flooding in Australia has threatened wheat quality, helping to add risk to wheat prices.

Chicago Board of Trade (CBOT) December soft red winter wheat futures on Friday closed at $8.4775 a barrel, up 2.2 percent from a week ago. December hard red winter wheat futures traded on the Kansas City Board of Trade (KCBT) closed at $9.5325 / pt, up 3.1 percent from a week ago. December hard red spring wheat futures on the Minneapolis Grain Exchange (MGEX) closed at $9.545 / bustin, up 1 percent from a week ago. Euronext's December 2022 contracts closed at 339.25 euros a tonne, up 0.5 percent from a week ago. Argentine wheat spot prices were quoted at $413 a tonne, down 1.7 per cent from a week ago. The ICE Dollar Index DXY, + 0.15% closed Friday at 110.774, up 0.15% from a week ago.

The point about the Black Sea deal is that Russia did not benefit from it

The prospect of a Black Sea deal has sent shockwaves through global wheat markets over the past week. On Oct. 29, Russia abruptly announced it was suspending its participation in an agreement to ensure Ukraine's safe export of grain through the Black Sea, citing large-scale drone attacks on its Black Sea fleet. The development triggered a nearly 8% jump in wheat prices in Chicago on Monday, as Ukraine is the world's leading wheat and corn exporter. But just four days later, Russia announced it was resuming its participation in the deal after Ukraine submitted written assurances that it would not conduct military operations against Russia through sea corridors and ports. But Russia has not yet decided whether to extend the agreement, which expires November 19. Looking back at the four-way deal brokered at the end of July between the United Nations and Turkey, Turkey became a Black Sea export hub, Europe got a lot of Ukrainian grain, and helped bring grain prices down sharply, reducing food inflationary pressures. But Russia can claim to have gained nothing, as the centrepiece of the original agreement was for the United Nations to facilitate Russian fertiliser and grain exports, but for months no progress has been made. The West has given verbal assurances that it will not put obstacles in the way of Russian grain and fertiliser exports, but Western banks, insurers and shippers are reluctant to do business with Russia because of concerns about potential sanctions and reputational risk -- a so-called chilling effect. So Russia's proposal to renew the Black Sea deal is conditional on easing sanctions on Russian grain and fertilizer exports, including an exemption from sanctions on Russia's Agricultural Bank, which handles payments for Russian grain and fertilizer exports. So the chances of the Black Sea deal being renewed depend on whether the West responds to Russia's expectations by easing sanctions on Agbank.

Us winter wheat ratings hit record lows for the time of year as weather risks emerged

Underscoring the impact of the ongoing drought in the Great Plains, the U.S. Department of Agriculture's first winter wheat rating report for 2020/23 showed a good to good rate of 28 percent as of Oct. 30, down from 45 percent a year earlier and the lowest for the same period since records began in 1987. The U.S. winter wheat planting schedule is 87 percent, compared with a five-year average of 85 percent. The emergence rate of winter wheat was 62%. The five-year average was 66%. About three-quarters of the nation's winter wheat-growing areas are now in drought, up from 43 percent at this time last year. More than half of the winter wheat growing areas are in severe drought or worse. The top winter wheat producing state of Kansas continued to dry out in the week ending Nov. 1, according to the U.S. Drought Monitor, and parts of the southwest had their driest October on record, making this week's extreme and super dry extended. As of Nov. 1, about 37.6% of Kansas was in super drought (D4) conditions, up from 33% a week earlier, when it was the highest D4 level since February 2013 and the highest D4 percentage of any U.S. state, according to the report. About 59.2 percent of the area is in extreme drought (D3), up from 58.3 percent a week ago. In Oklahoma, about 21.1 percent of the state is in super drought, unchanged from last week. About 66.8 percent of the area is in extreme drought, down slightly from 70.3 percent a week ago.

U.S. wheat exports still lag

The weekly USDA export sales report showed 2020/23 US wheat net sales volume for the week ended October 27 was 35 tonnes, down from 530,000 tonnes a week earlier. Us wheat export sales so far this year totaled 12.17 million tonnes, down 6.4 per cent from a year earlier.

The quality of Australian wheat has been damaged by floods

Excessive rainfall and flooding in parts of Australia's wheat-growing regions have caused widespread damage to wheat crops. While Austrac is still on track for a third consecutive bumper crop, about half of the wheat crop in the eastern Grain belt, known for producing high-quality hard wheat, is likely to be reduced to feed, analysts said. But the extent of the damage won't be known until the flood recedes. The Australian Bureau of Agricultural Resources Economics and Sciences (ABARES) warned in early September that a third consecutive year of La Nina conditions at the end of 2022 could lead to localised flooding and a decline in wheat crop quality similar to that seen in 201/22. ABARES forecasts output of 32.2 million tonnes in 202/23, down 11 per cent from the previous year.

Argentina's wheat production is down and the government is considering allowing a delay in exports

The Buenos Aires Grain trade this week cut the 202/23 Argentine wheat crop to 14 million tonnes, down from last week's forecast of 15.2 million tonnes. A week ago, the Rosario Grain Exchange forecast Argentina's wheat crop at 13.7 million tons, down about 40% from 23 million tons a year earlier.

Argentina's agriculture ministry said this week that it would allow Argentine exporters of wheat between Dec. 1 and Feb. 28 to delay shipments by as much as 360 days. That means global wheat supplies could become even tighter. The government's move is aimed at securing domestic supplies and helping exporters complete sales to customers around the world as drought has severely reduced wheat production.

Argentine government data show that exporters have registered 8.85 million tons of wheat for export, but farmers have priced in sales of only 3.15 million tons. Argentina's domestic flour mills demand 6 million tons of wheat.

China was the top buyer of Canadian wheat in August and September

Trade data from Statistics Canada show that China was the main destination for Canadian wheat in the first two months of 2020/23 (August to July). Canada exported 534,000 tonnes of wheat to China in August and September, about double the amount a year earlier and accounting for about 20% of its total wheat exports, with other major buyers including Japan, Bangladesh and the US. China mainly imports Canadian West hard red spring wheat (CWRS). China also imported 125,000 tonnes of canola from Canada, accounting for 34% of Canada's total exports, down slightly from a year earlier.