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Global wheat market: The uncertain outlook for Black Sea exports exacerbates wheat market volatility

 Last Update: 2022-10-19
 Source: Internet
 Author: User

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Foreign media news on October 16: In the week ending October 14, 2022, global wheat prices were mixed
.
Among them, US wheat futures are volatile, showing a trend of first rising and then declining, failing to extend the rally a week ago, mainly because of the strengthening of the US dollar, the high price of US wheat, and exports are expected to hit a 50-year low; At the same time, wheat prices in Europe strengthened as the outlook for Black Sea cereal exports was uncertain; La Niña led to a decline in Argentina's wheat production potential, which also drove up
local wheat prices.

The Chicago Board of Trade (CBOT) December soft red winter wheat futures closed at about $8.
5975 a bushel on Friday, down 2.
3 percent
from a week ago.
The Kansas City Futures Exchange (KCBT) hard red winter wheat for December closed at about $9.
5225 a bushel, down 1.
7 percent
from a week ago.
The Minneapolis Grain Exchange (MGEX) December hard red spring wheat season closed at about $9.
5425/bu, down 1.
4 percent
from a week ago.
Euronext's December 2022 futures closed at around 350.
75 euros/mt, up 0.
8% from a week ago; Argentine wheat spot was quoted at $421/mt, up 0.
7 percent
from a week ago.

The dollar index was at 113.
202 on Friday, up 0.
5 percent
from a week ago.

USDA wheat supply and demand data is bearish for U.
S.
wheat and more for world wheat

The USDA on Wednesday lowered its U.
S.
wheat export forecast for 2022/23 (June-May) by 50 million bushels.
To 775 million bushels, which would be the lowest export volume since 1971, because U.
S.
wheat was expensive and uncompetitive in global export markets; feed use was also lowered by 30 million bushels; on the supply side, U.
S.
wheat production was revised down to 1.
650 billion bushels, 133 million bushels lower than the previous month, in line with the September 30 report on small grain production; and imports were revised up by 10 million bushels to cushion the impact
of lower production 。 Ending stocks, although falling to 576 million bushels from 610 million bushels, were higher than industry expectations of 563 million bushels, so they remained bearish for the wheat market, with hard red winter wheat stocks lowered by 3 million bushels, soft red winter wheat stocks lowered by 34 million bushels, and hard red spring wheat stocks raised by 3 million bushels
.
The average annual price of U.
S.
wheat rose by $0.
20 to a record $9.
20/bushel
.

In terms of global supply and demand, global wheat production declined by 2.
22 million mt to 781.
7 million mt as the US (-2.
42 million) and Argentina (-1.
5 million) downward revisions outpaced those in the
European Union (+1.
35 million) and Brazil (+500,000).
。 Global wheat exports were revised down to 208.
33 million tonnes, a slight decrease of 660,000 tonnes from the previous month, including 42 million tonnes from Russia, 35 million tonnes from the EU (+1.
5 million mt), 26 million mt from Canada, 25 million mt from Australia, 21.
1 million mt (-1.
35 million mt) for the US, 12 million mt (-1 million mt) for Argentina and 11 million mt
for Ukraine.
Global wheat ending stocks are expected to be 267.
54 million mt, down 1.
03 million mt
from the previous month.

Overall, this supply and demand report gives me the feeling that the high price of wheat in the United States has led to a disadvantage for exports, so prices need to be cut to boost demand; Global wheat supplies remain tight, especially in the southern hemisphere under the threat of La Niña weather, and in addition to the drought in Argentina, the recent heavy rains in Australia may also threaten wheat quality and potential production scale
.

The prospect of a Black Sea agreement adds to the uncertainty

The outlook for Black Sea cereal exports remains uncertain
.
A week ago, U.
N.
officials were confident that the agreement could be expanded next month and the time it was signed
was extended.
Russia's ambassador to the United Nations then gave this optimism a cold drop, saying that Russia was ready to withdraw from the Black Sea grain agreement next month unless the relevant issues raised by Russia were resolved
.
U.
N.
officials will discuss the renewal of
the agreement in Moscow this Sunday.
Russia's main complaint with the agreement is that although one of the core elements of the July agreement was to facilitate Russian grain and fertilizer exports, there has been no improvement
in this regard.

However, judging by the available information, Russia is still bargaining rather than rejecting
outright.
Earlier, Russian President Vladimir Putin also reiterated Russia's commitment to exporting grain and making its due contribution to
global food security.
After Putin and Turkish President Tayyip Erdogan met on Friday, there was renewed hope for Sunday's talks, and the wheat market gave back some of the risk premium
.
Nevertheless, considering that the current Russian-Ukrainian conflict is evolving in an unpredictable direction, it is inevitable to play this card before the Russian-Ukrainian conflict truly achieves a ceasefire, and the future of Black Sea grain exports is destined to change
.

Argentine wheat is becoming the first victim of La Niña for the third year

On October 13, Argentina's two largest grain exchanges unanimously revised down their forecasts for the upcoming Argentine wheat harvest, as drought and low temperatures hurt crop growth, weather conditions in major agricultural areas show little signs of abating, and rain in the coming weeks remains scarce
.
The Rosario Grain Exchange expects Argentina's wheat harvest in 2022/23 to be 16 million mt, down 500,000 mt from its previous forecast and at a seven-year low, well below last year's record production of 23 million mt
.
On the same day, the Buenos Aires Grain Exchange expected wheat production of 16.
5 million tons, down from a previous forecast of 17.
5 million tons
.
Argentina's 2022/23 wheat harvest will be in November and January, and the recent weather forecast is not optimistic
.

Concerned about tight domestic supplies due to reduced wheat production, the Argentine government is considering tightening controls
on wheat exports.
Sources said the government had held a meeting with exporters as domestic flour millers feared a shortage
of domestic wheat supplies.
Restrictions considered by Argentina include delaying shipments of 8.
8 million tons of wheat already registered for export or limiting export registration to 9 million tons until the damage to
production is fully understood.
The largest buyer of Argentine wheat is neighboring Brazil
.
The Argentine government has previously set an export quota
of 10 million mt for wheat exports in 2022/23.

U.
S.
wheat sales have been slow, with winter wheat more than halfway sown

Finally, let's quickly review the routine data
for US wheat last week.
US net wheat sales in 2022/23 were 210,000 mt in the week ended Oct.
6, slightly down from 230,000 mt a week ago and at the lower end of
the market expectation range, the weekly export sales report showed.
Year-to-date U.
S.
wheat export sales totaled 11.
13 million mt, down 7.
1 percent
year-on-year.

The USDA's weekly crop progress report shows that as of Oct.
9, the U.
S.
winter wheat planting progress was 55 percent, 40 percent last week, 58 percent a year ago, and a five-year average of 58 percent
.
The emergence rate of winter wheat was 26%, compared to 15% last week, 29% in the same period last year, and the five-year average of 32%.

USDA weather reports show that the weather in the winter wheat-producing areas of the U.
S.
Plains remains dry, further reducing the topsoil moisture required for winter wheat to emerge and grow
.
As of Oct.
9, 81 percent of Kansas' surface mounds were short to very short, compared to 86 percent last week; Oklahoma 95%, last week 92%; Texas 76%, last week 68%.

As of October 11, the arid area of the U.
S.
plains (D0 to D4) reached 90.
5%, up from 90% a week ago and 84.
54%
in the same period last year, according to the weekly US Drought Monitor.
The 6- to 10-day outlook released by the Center for Climate Predictions (CPC) shows that weather in much of the United States was drier than normal between October 18-23, 2022, with the north-central Great Plains having the highest probability of below-normal precipitation (50%)
.

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