Last week, the price of Russian wheat with 12.5% protein dropped to $294-298/t from $300-303/t a week earlier, according to SovEcon. FOB prices fell below $300/t for the first time since August 2021. Russian wheat is getting cheaper amid fierce competition with other exporting countries.
Wheat prices in Russia follow the downward trend in the global wheat markets. Since Feb. 14, Chicago stock prices have fallen 12% to $6.95/bu ($255/t) and Paris stock prices have fallen 10% to €271/t ($289/t).
Sales on CBOT and MATIF are spurred on by expectations of the extension of the “grain deal”. In our view, the chances of such an outcome are high, especially after Beijing called for an extension of the deal in its Feb. 24 statement.
Hedge funds are likely to be actively selling wheat in recent weeks. By private estimates, the current net short position is 100k contracts, well up from 72k in mid-February, according to the latest CFTC estimate.
Australia’s wheat crop estimates continue to rise. On March 7, the Australian Bureau of Agricultural and Resource Economics (ABARES) raised its estimate for 2022/23 wheat production to a record high of 39.2 Mt from 36.6 Mt in December. In 2021/22, Australian wheat exports were estimated at 36.4 Mt.
Russia is currently shipping wheat at a record pace. In January-February, the country exported 6.7 million tons against 4.3 million tons a year earlier.
In the short term, Russian FOB wheat prices are expected to decline further as exporters seek to regain competitiveness. Russian wheat should remain $5-10 cheaper than European. However, the downside potential is limited. It is difficult for Russian exporters to transfer lower export quotations to the domestic market against the background of relatively slow sales of farmers.
“We also believe that current global wheat prices are at a fundamentally low level. The global balance of wheat remains tight, and the risk of supply disruptions from the Black Sea is high,” analysts said.