Russian wheat prices on rise

21.01.2019

There seems to be little doubt that Russian wheat prices are on the increase. Most weeks we read reports suggesting that prices have risen another dollar or two, and most new export tenders they win into key consumptive markets seem to be at slightly high levels each time.

With the price increases come stories of wheat supplies tightening, forcing up the Russian domestic market. That then fuels another round of speculation of the government having to step in and curtail Russian wheat exports.

At this stage the only tangible action that seems to be confirmed is that rail freight rates within Russia are to be subsidised. This will enable grain stocks held deep inland to get to consumptive markets further west in Russia. It may also allow the flow of grain to export terminals to continue a little longer.

The other news on the demand front is that China may have bought as much as 2 to 3 million tonnes of Hard Red Winter wheat from the US. Such stories are hard to confirm because of the government shutdown curtailing a lot of USDA reporting, but there does seem to be some truth behind an increase in demand for higher quality wheat from China.

Normally Australia participates in this trade, but with our own supplies tighter, it has been reported that Canada has been making additional sales this year, and now possibly the US.

The China story is interesting on two fronts. Firstly, they are regular importers of higher quality wheat, and this year they seem to have to cast the net further afield. Secondly, are we seeing a lift in Chinese demand above recent ‘normal’ levels?

If China is lilting its imports above what it has been normal in recent years, it will signal a new source of demand for wheat in the global market. In the past when China has increased its imports it has been supportive of global prices because of its additional pressure on global supplies. This year any lift in demand into China will coincide with tighter global stocks, and importantly will see stocks outside of China come under a little more pressure.

Of course, if any increase in demand from China flows over to the US it will help support the long awaited lift in US wheat exports, forecast for the second half of the 2018/19 marketing year.

Meanwhile the screws are also being applied within the Australian grain market with the summer heat pulling down potential sorghum production in the northern cropping regions. At the same time, it draws us closer to an uplift in demand for feed across drought ravaged areas of Qld, NSW, Vic and SA.

To put the potential feed demand into context, there are more reliable parts of SA where water supplies are as tight as they have ever been, and where paddock feed post harvest is running out. Some of these regions have been key suppliers of fodder for eastern drought regions over many years, but are now becoming a significant part of the feed demand equation themselves.

There is a lot more to be played out in both the global and domestic markets during 2019. It remains a patience game for all grain growers, whether they are dealing with unsold grain from last harvest or looking forward to what might be achieved for the new season.


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