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WMR - World Wheat Prices Retreat on Russian Export Pace

By: Jim Peterson
Posted: Mar 02 2023

Wheat prices have weakened as February transitions into March, in large part due to the aggressive export pace from Russia and Ukraine.  Shipments from the Black Sea region have been moving at larger volumes and a quicker pace recently.,

The Black Sea Initiative started in July of 2022, and was extended in November of 2022.  The brokered agreement established a safe maritime humanitarian corridor for vessels of grain to move out of ports in southern Ukraine.  The extension is set to expire in the middle part of March, and Russia says it may not agree to an extension, unless it gets further concessions on sanctions for other world countries.  This is part of the reason why there has been an acceleration of shipments in the last couple of months.  Since the start of the agreement, more than 600 vessels have moved under the initiative delivering needed food to many poorer countries in Africa and the Middle East, but also having overlying impacts on all markets, with cheaper priced corn, wheat and other products to many developed countries.

Prices for world wheat are back down to pre-invasion levels in all markets.  Minneapolis has shown less of a decline, relative to Chicago and Kansas City since last fall, but even though HRS does not directly compete with Black Sea, and other cheaper wheat sources, pressure has been felt.  HRS values have been supported by higher year-on-year exports and strong domestic mill demand.  All wheat markets are approaching an oversold level with the recent sell-off, and hopefully that will bring some stabilization back into markets.

World markets have also been pressured this year by a record world wheat crop of 28.8 billion bushels, a record Australian crop and aggressive early season sales out of Canada.  Australia is projected to have a second consecutive year of more than 1 billion bushels in exports, placing them as the 3rd largest exporter behind Russia and the EU.  Canada is projected to be up nearly 70% on exports compared to last year, and they have moved a good share of their crop in the first half of the U.S. marketing year.

World wheat consumption is down slightly from a year ago, but still near record levels of 29 billion bushels, and still outpacing the record production.  Food consumption is down in some of the largest, poorer countries in the world, as inflationary and economic pressures are shifting wheat based demand to rice, or simply just lower overall food consumption.  In contrast, feed and industrial use of wheat has increased over the past two years in some key developed countries due to the elevated price of corn.

Throughout the current marketing year, U.S. wheat exports have been challenged due to price levels that are well above world values, and exacerbated by a strong U.S. dollar.  Many countries price their wheat in U.S. currency, so this has given an added edge to other exporters in numerous markets, especially more price sensitive markets.  As of the middle of February, overall U.S. wheat export sales stood at 617 million bushels, down 6% from a year ago, and at 80% of the projected goal for the year of 775 million bushels.  Top markets are Mexico, Japan and the Philippines combining for about 40% of total U.S. sales, but compared to a year ago sales to each country are down 9%, 10% and 24%, respectively.  By wheat class, soft white and hard red spring are faring the best in the marketing year, with sales 33% and 6% above a year ago, respectively.

Market trends over the next few months will continue to be impacted by Black Sea trade, and whether the safe shipping corridor is extended, the direction of the U.S. dollar, confirmation of better export sales from the U.S., and the moisture patterns across U.S. HRW regions.  Hopefully the factors that have been a negative drag on prices in recent months will shift to more positive, providing a boost to the wheat market as we transition into the 2023 crop.  

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