thomas wigglesworth Hello and welcome to another S&P Global Platts Commodity Spotlight podcast for June 19, 2018. My name is Thomas Wigglesworth, Associate Editor in London, and I'm joined in the studio by my colleague James Colquhoun, Senior Grains Specialist, and we're going to be talking about Russian 12.5% protein wheat and the imminent harvest of its new crop.
Question: James, prices for Russian 12.5% protein wheat have begun to fall as we get closer to the arrival of the new crop. What are the reasons for that?
james colquhoun Correct. Seasonally, we usually see prices fall as we get closer to the new crop on account of more supply being made available. Buyers at this stage are fully aware of the increase in supply and so lower their bidding price, pulling the ask price lower. However, in the last week we have seen prices move lower more aggressively reflecting the strong harvest pressure. Most competitive July offers have dropped $6-$7 in the last week to $199/mt loading at Novorossiisk: this sudden drop was observed between Wednesday and Friday last week. Last season, prices dropped $20 on harvest pressure. Some market participants think $15-$20 could be possible this year.
Question: What do think is driving prices lower so aggressively?
The major factor is undoubtedly new crop harvest pressure. However, this season's harvest is starting unusually early with forecasts revised closer and closer to today. Some sources have said by the weekend. Normally we see the new crop harvest take place in mid July. Driving the earlier harvest is the persistently dry and hot weather engulfing the South of Russia and Ukraine too, for example. Farmers are worried about damage to their crops, which would likely reduce yield levels as well as the volume of higher protein wheat, forcing them to take the wheat off the field sooner. Equally, most export programs have not yet started meaning there is a lack of buyers on hand. Given anticipation for a July harvest and many key destinations out of the market due to religious holidays such as Ramadan, it is not surprising.
Question: How long do you think this will affect wheat prices?
The recent USDA WASDE displayed quite bullish data. Indeed so. The pressure looks to be affecting prices on the very prompt but as we move into August, and especially September-loading periods, as well as further down the forward curve, we can a very bullish carry forming. While the dryness may be pushing famers to start harvesting earlier, the threat of crop damage is signaling that less high protein wheat will be available and that yields are set to fall. The USDA revised its already low estimate of 72 million mt to 68.5 million mt. Much of the market has also revised lower to around 72 million mt now, although very few forecast less than 70 million mt if at all. Many of the highest yielding wheat fields are in the South, which means that wheat be easily moved from farm to port. While other regions further inland may be without much risk of crop damage, transshipment from these areas would entail a logistical premium. Indeed, other competing regions such as the Baltic have lower sowings and have been battered by the recent dry spells. This would also provide more forward price support for Russian wheat exporters. We can see already that there is a $7-$10 carry between July and October.
Thank you very much for your time James, that was great. We'll be back with another podcast in the near future. In the meantime, if you want to know what we're up to here with our agriculture coverage, you can always have a look at platts.com/grains, or you can follow us on Twitter @PlattsAg.