Jan 3 / Alef Dias

Grains, Oilseeds and Livestock Weekly Report - 2024 01 03

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Wheat: Russian fundamentals continue to put pressure on the market

•A new year is beginning, but Russia continues to bring bearish fundamentals to the wheat markets.

•The weather has been improving for the new Russian winter crop for several months now. At this stage, everything is pointing to a total production of over 90M mt.

•Looking at the demand side, some of the main destinations seem to be sensitive to price variations, which limits the upward potential.

•Shipments at Russian ports in December slowed down compared to the fall, and sales of Russian wheat decreased at the end of the month.

Introduction

A new year is beginning, but an old theme is likely to continue to put pressure on the wheat markets throughout 2024: the supply of Russian wheat. So far we have several indications of another large winter harvest in the country, and the reduction in foreign purchases of Russian wheat as a result of "artificially" higher prices also shows a weakness in demand.

New crop, same story

Weather conditions in most winter wheat regions are favorable for the crop's development. In the last 60 days, rainfall has exceeded 200% of normal, improving soil moisture in the South and establishing sufficient snow cover in other areas.

The condition of winter crops is better than average. According to the Russian Hydro-Meteorological Center, only 4% of winter crops were in poor condition at the end of November, compared to a five-year average of 8%. Conditions have probably improved further in recent weeks amid favorable weather.
Fig. 1: Production, Domestic Use and Exportable Surplus - Wheat Russia (M mt)

Source: USDA.*24/25 considering SovEcon's estimates

Fig. 2: Rainfall over the last 60 days (% of normal - wheat production shown internally)

Source: WorldAgWeather

Weather models for the next two weeks predict ample rainfall and temperatures several degrees above average in most winter wheat-growing regions.

The weather has been improving for the new Russian winter crop for several months now. At this stage, everything is pointing to a total production of over 90M mt. If there are no major weather anomalies, this could start to put pressure on global wheat prices in the second half of Q1 2024.
Fig. 3: Soil moisture in the root zone of Southern Russia (% within the top 1 meter)

Source: Refinitiv

Fig. 4: Temperature anomaly - Next 15 days (ºC of normal)

Source: NOAA, hEDGEpoint

Demand likely will not match the minimum price

Shipments at Russian ports in December slowed down compared to the fall. Wheat exports totaled 2.0M mt in the first three weeks of December, compared to 2.3M mt in November and 2.7M mt in October.

Sales of Russian wheat decreased at the end of the month. The amount of outstanding Russian wheat sales on December 27 was 2.9M mt, down from 3.3M mt at the beginning of the month.

Shipments are likely to be limited by the Russian Ministry of Agriculture's (AgMin) attempts to regulate wheat prices. In Egypt's last two GASC tenders (the last one having been canceled last week), Russian suppliers were unanimous in offering wheat at $265/mt. These offers are probably in line with the "recommended minimum price" set by AgMin, as reported by Russian media.

In December, SovEcon (a consultancy specialized in the Russian market) reduced its estimate for Russian wheat exports in 2023/24 by 0.2M mt to 48.6M mt. The USDA maintained its estimate at 50.0M mt. Considering the current market dynamics, the latest estimate is starting to look overly optimistic.
Fig. 5: Monthly exports by ship - Wheat Russia (M mt)

Source: Refinitiv

In summary

Recent fundamentals from the Russian market should continue to exert downward pressure on wheat prices. Looking at the demand side, some of the main destinations seem to be sensitive to price variations, which limits the upward potential - especially in North Africa. On the supply side, conditions remain very positive for the winter crop in Russia, which is on track for another total production (winter + spring) of 90M mt.

Fig. 6: FOB wheat prices - Europe and the Black Sea (USD/ton)

Source: Refinitiv

Weekly Report — Grains and Oilseeds

Written by Alef Dias
Reviewed by Pedro Schicchi
[email protected]
www.hedgepointglobal.com

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