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Listen: How high will Russian wheat prices rise?

Russian wheat prices continue to surge amid heat and drought, subsequently bringing about lower yields from the concurrent harvest. With global competitors in Europe and Australasia also facing difficult conditions, fundamentals are likely to tighten further, especially for Russian high protein wheat.

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Hello and welcome to another S&P Global Platts Commodity Spotlight podcast on Russian deep sea 12.5% protein wheat for July 27, 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. Following the continuous surge in Russian wheat prices, we will be discussing how high prices can rise.
Question:
James, why are Russian deep sea 12.5% protein wheat prices skyrocketing at the moment?
- Hi Tom. A serious lack of rain in the last few months as well as plenty of heat have dried up most of the soil moisture for good healthy wheat yields, particularly in key producing regions in the South.
- As a result, there is much less high protein wheat than what we saw in the previous 2017/18 marketing year, or at least forecasts at this point would strongly suggest so.
- Indeed, recent rains in South Russia and South Ukraine were unhelpful as the wheat was at an already advanced stage and ready for harvest. Rain at this stage could reduce other key qualities such as gluten levels.
- To give a bit of context, prices have jumped over $20/mt in the space of a month and are fast approaching a 40-month high, last seen in March 2015.
- With expectations of less 12.5% and other higher protein wheats available, farmers are holding back stock and given the return of exporting programs, fundamentals are tightening and very quickly.
Do you think these price levels or indeed increases are sustainable?
- Quite possibly given good Global Supply and Demand fundamentals.
- Regional competitors in Europe, namely the Baltic and Germany are also struggling on account of the drought.
- Crop sizes have been slashed and yields are lower. Given high domestic consumption, there will be less surplus wheat for export, thus supporting prices further.
- Elevated prices here, provides more leverage for Russian sellers to sell at a higher price abroad.
- Looking at September-loading prices, German or Baltic what prices around $25 higher than Russian.
- Furthermore, Russian exports to Asia are likely to increase this marketing year, especially as Australian wheat prices continue to rise also as a result of drought.
Is there space for a reversal at some point?
- Of course. But when and at what levels is the most difficult point to decipher.
- The last time we saw a $20 jump on the month was in September to October 2015. Prices then rose a little more before taking a downward trend.
- Some participants saw values in the $220s for prompt-loading as a possible peak. Others see $300/mt as more realistic, with some adding that when warehouses are full, we will see a slow and possibly a reversal in price.
- Although, much of this will depend on whether farmers decide to offer more wheat and if destination will buy less.
- With Turkey's local harvest essentially complete and there being a lack of high protein material in the market, it is highly likely that buying will resume in late August, early September, after a period of low buying due to a weak lira. This would likely support prices.
- At present there is roughly a $10 carry between September and October and trades are ongoing in October and into November, where there is an even greater carry.
- With global demand set to increase and much drier conditions affecting grains across the world, we may see prices move closer to values last seen in 2014/15.
Thank you very much for your time James, that was very insightful. 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 www.platts.com/grains, or you can follow us on Twitter @PlattsAg.