World Grain - March 2019 - 18

GRAINMARKET REVIEW

WHEAT

Trade conflicts injecting
unpredictability to price movements

Monthly wheat price
(U.S. dollars per tonne)

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by Chris Lyddon
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Jan 2019

Dec 2018

Nov 2018

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Book 1.indb 18

Aug 2018

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Jul 2018

Fundamental factors are playing a big role in the development
of global wheat markets as traders eye developing Northern
Hemisphere crops, but trade relations, notably between the
United States and Russia, but also the ongoing U.S.-China
dispute, have been injecting unpredictable elements into price
movements and trade flows.
In its January Agricultural Commodities Market Report,
Rabobank described the price outlook as elevated in the short
term, before a bearish outlook ahead of the 2019 harvest. The
bank noted that rising Russian export prices were putting the
United States in a strong position to gain market share.
By the second half of February, commentators at the U.K.'s
Agricultural and Horticultural Development Board (AHDB)
were exercised about the effect of a proposed U.S. policy
move on Russia's wheat exports.
"The potential imposition of fresh U.S. sanctions on Russia
devalued the ruble significantly," the AHDB said on Feb. 18.
"This dropped the price of wheat amongst other global exporters in an attempt to remain competitive."
The AHDB took a bearish view of the new crop.
"There is still a strong suggestion that the 2019-20 crop will
be a big one globally, even with a cut to the U.S. wheat area
earlier this month," the AHDB said. "The weather outlook
in the Northern Hemisphere remains positive, with no major
concerns in the U.S., E.U. or Black Sea. Where temperatures
are trending slightly colder (U.S. and Black Sea), there is little
to no winter kill risk."
In its Jan. 24 Grain Market Report, the International Grains
Council (IGC) added 8 million tonnes to its forecast for the
2018-19 global wheat crop, bringing it to 737 million tonnes,
still well down on the previous year's 767 million. But for
2019-20, the IGC expects a recovery.
"Owing to a projected increase in area and yields, global
production is tentatively placed 2% higher year-over-year,
at 751 million tonnes," the IGC said. "Amid relatively firm
prices and some switch out of rapeseed, total wheat area in the
E.U. is expected to rebound by 5% to a three-year peak of 26.6
million hectares. After a dry autumn in northern parts, recent
precipitation was beneficial."
The IGC said it expected area up "slightly" in Russia, while
for Ukraine "preliminary official data indicated a 3% yearover-year increase in winter wheat seeding, with farmers encouraged to plant more by potentially strong returns."
The IGC also noted that "winter wheat area in Canada
dropped for a third consecutive year to a 14-season low of
500,000 hectares (-4%)," pointing out that sowing of the main
spring crop, which it also felt could decline, will start in May.

Wheat (US), no. 1, hard red winter, ordinary protein, export price
delivered at the U.S. Gulf port for prompt or 30 days shipment.
Source: USDA; World Bank

Meanwhile, the IGC said farmers across the southern U.S.
Plains had been unable to complete HRW planting.
"Spring wheat area will depend largely on relative prices,
but could potentially rise again," the IGC said. "Assuming
normal abandonment, all-wheat harvested area is projected to
edge higher."
The IGC described winter crop conditions as better than in
recent years following plentiful rain.
In its Wheat Outlook report of Feb. 12, the USDA's Economic Research Service (ERS) explained that U.S. winter
wheat plantings are the lowest since 1909.
"Wet, muddy fields combined with cold weather to inhibit
progress toward planting the 2019 winter wheat crop," the
ERS said.
The IGC's January Grains Market Report said that "global
export prices mostly firmed since the November GMR, with
the IGC GOI wheat sub-Index up by 3%."
"Support was partly linked to unfavorable weather during the
harvests in Argentina and Australia," the IGC said. "Although
Russia continued to capture a large share of world export business, there were signs that shipments were slowing as its price
competitiveness waned. Export sales from the U.S. and the
E.U. were expected to benefit, but any uplift to prices at those
origins was muted by a lack of evidence of better demand.
"In the U.S., this was exacerbated by the partial government shutdown, which interrupted the release of market information. As well as export sales updates, estimates of U.S.
winter wheat area were among the data to be delayed. Nevertheless, the belief that inclement weather had likely curtailed
U.S. plantings to historically low levels offered some price
underpinning."
Chris Lyddon is World Grain's European correspondent.
He may be contacted at: chris.lyddon@ntlworld.com.
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March 2019 / World Grain / www.World-Grain.com

3/6/2019 12:30:50 PM

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World Grain - March 2019

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