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The world's got a wheat problem



Around the wheat world







"With a 13% reduced production and an estimated 7% increase in domestic demand, supply of wheat from the UK will be limited, with current estimates . . . putting export availability at a historic low level of just 750,000 tonnes," according to an HGCA report.

Now, head east to the Steppe region of Russia and Ukraine. The agriculture ministry in Ukraine reported this week that nation's crop, the harvest of nearing completion, is coming in just shy of 20% less than normal, reports indicate. The situation is similar in Russia, and it's caused officials in both nations to mull banning exports to ensure they can meet domestic needs.

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Now, loop around the globe and south to Australia, where farmers have faced problems similar to those in the U.S. and Europe. The drought's already trimmed that nation's projected wheat output and "there will certainly be plenty of adjusting to do" as harvest advances, says Market Analyst Louise Gartner.

"Australia is looking at some open weather to get the harvest rolling, but reports to date suggest quality is suspect there as well," Gartner adds. "Production prospects in Australia are also declining with recent estimates hovering at the 19 MMT level, down 1 MMT from earlier estimates."

Market implications

The wheat market's generally marched alongside corn and soybeans, at least in the U.S. marketplace, for the last few months. But, will these worldwide weather problems precede a decoupling of the pits and surge in wheat alone? It all depends on just how much longer end-users can and will continue to pay for a commodity with a lot of upside potential.

"I think we're just here waiting on the end-user," says U.S. Commodities grain broker and market analyst Don Roose. "There are more people in the market living hand-to-mouth and we're already at high levels. It's not like prices have scared anybody, but what this does is we keep gradually tightening down this market."

Wheat's unique to other grains in that "there's a wheat harvest going on somewhere" most of the year, and as such, there's always a supply moving into the market, even if it's one region's short crop. The fact that so many areas this year are facing potentially short crops has "supply worries building," Roose says.

Moving forward, there are expectations that Argentina and Australia will still raise "some sizable crop" because of how advanced those nations' crops are right now. The biggest question mark remains in North America.

"It's too wet in Argentina, Russia and Ukraine are pulling back on exports, and the EU is having a short crop," Roose says. "We're really counting on a big crop in North America, but we're struggling with drought ourselves."

Right now, there's less tightness in the wheat sector than in corn and soybeans, Roose adds. If things do start tightening up to those levels, though, look for changes in the structure of the market.

"If you have bull spreads moving precipitously, if March wheat gains on the May contract, that would be one sign," Roose says. "I think we're high enough here, and as we start to jockey around through the end of January, it will start getting more interesting."

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