Russian wheat prices seen higher in 2-3 months on output forecast cuts
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Russian wheat prices seen higher in 2-3 months on output forecast cuts

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UkrAgroConsult

Wheat importers may be in for a rude shock for yet another year as prices of Russian origin wheat are expected to rise in two to three months following a cut in production estimates for the 2019-20 (July-June) marketing year, according to analysts.

Analysts estimate Russian wheat prices will rise by around 7-10% in the next two-three months.

Countries in Southeast Asia, North Africa, and the Middle East are major importers of Russian wheat.

Usually, wheat prices tend to fall during harvesting because of the increase in supply. Given the initial forecast was for a bumper crop in Russia in 2019-20, and based on the usual seasonal trend, importers were expecting prices to fall.

Wheat harvesting in Russia starts around mid-June and lasts till mid-August.

However, dry and hot weather in major wheat exporting countries led analysts and the US Department of Agriculture to lower their total wheat production forecast for 2019-20 from their June estimate. The cut in production estimate was the steepest for Russia, the world's largest wheat exporter.

The USDA cut its 2019-20 Russian wheat production estimate in its July report to 74.20 million mt from the 78 million mt it estimated in June.

SovEcon, one of Russia's leading agriculture consultancies, has made a series of cuts to its estimate of Russian wheat production to 73.7 million mt from 83.4 million mt in April.

"For Russia, they [the production estimate cuts] were more than expected...The wheat harvesting pressure period will come to an end. Thus, in about three months, wheat prices have the potential to increase by at least 7-10%," agriculture commodities analyst with Atria Brokers Christina Serebryakova said.

S&P Global Platts assessed Russian Black Sea wheat with 12.5% protein content, FOB Panamax ports at $195.75/mt Monday.

Even last year, when production forecast was much lower, Russian wheat prices had risen sharply. According to the USDA, Russia's estimated wheat production in 2018-19 (July-June) was 71.69 million mt, down 18.8% from 2017-18.

However, the rise in Russian wheat prices so far this year looks to be less than a year earlier when production took a bigger hit. The Platts assessment rose 14% between July and August 2018 but since the USDA cut its forecast for Russian wheat production on July 11 the assessment has risen by just 2.2%.

It was unlikely that Russian wheat prices would rise as much as at this time last year, a Moscow-based analyst said. However, the rise would still be significant, he added.

"I think Russian wheat will still be preferred by Southeast Asian wheat millers/buyers as it is still the most competitive wheat as compared to other origins," senior analyst with Rabobank for grains and oilseeds in Southeast Asia Oscar Tjakra said.

Southeast Asian countries, including Indonesia and Philippines, are major importers of wheat. Russia's presence in the regional import market has grown over the last few years and is expected to increase as it becomes increasingly competitive against Australia, which is has traditionally been the largest exporter to the region.


spglobal.com

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