Wheat Market still Tumultuous due to Black Sea Tensions

Article by: Hari Yellina

The monthly report from the United States Department of Agriculture released last week contained both positive and negative news. The bad news was that US wheat stock forecasts were elevated, owing to slower export sales, which resulted in a fall in expected US exports for this year. However, the global figures were more encouraging. Several Middle Eastern countries, including Iraq and Syria, have curtailed production. This resulted in a 2.18 million tonne drop in global production compared to January projections.

In addition, there was a 610,000t increase in consumption, as feed use increased for Canada in response to lower-than-expected stock levels. Because of recent increases in wheat prices, Chinese consumption has decreased. Despite an increase of 1.05 million tonnes in opening global wheat stocks, ending stock forecasts were lowered by 1.71 million tonnes due to lower output and higher consumption estimates. However, there was more to it, as stocks outside of China fell by 2.74 million tonnes. This was due to lower consumption in China but higher consumption in Canada, so when China is taken from the equation, consumption in the rest of the globe climbed by 1.61 million tonnes, bringing stockpiles outside of China down by more than a million tonnes.

While stocks in the United States have climbed, stocks outside of the United States and China have fallen even more. Argentina’s stockpiles have shrunk by 630,000 tonnes, while Canada’s stockpiles have shrunk by 2 million tonnes. Outside of the United States and China, the balance sheet is extremely tight. When one factors in the risks to exports posed by a hypothetical Russian invasion of Ukraine, we have a very jittery market. Other exporters’ ability to fill any void created by Black Sea exporters is restricted.

While the US may have some surplus export capacity, while stock estimations have been rising, actual wheat stocks are expected to be at their lowest level since 2013-14, and then back to 2007-08. The industry witnessed a minor rise in Chicago Board of Trade wheat futures following the USDA data, but those gains, plus some, were wiped out the next night. The US then suggested that a Russian invasion of Ukraine may happen as soon as this week, prompting a big rally in wheat futures on Friday night. This week might be tumultuous as tensions in the Black Sea play out, as well as weather difficulties in South America and the United States.