More Inane Ramblings

London and Paris wheat have rebounded this morning I see on talk that Russia may end up importing up to 5 MMT of grain in 2010/11. With a crop of the anticipated 60 MMT and consumption of around 75 MMT there's certainly a 15 MMT deficit looking to be found.

Official carryover stocks at the end of the 2009/10 marketing year were 24 MMT, although unofficial estimates suggest that it was probably nearer 20 MMT. In theory that should make imports unnecessary, although we've no idea what the quality of these carryover stocks is of course.

Buddies Kazakhstan appear to be waiting in the wings to assist after increasing their export estimate by 2 MMT today. Of course it probably hasn't escaped anybody's notice that Russia help provide the landlocked Kazakhs with a gateway to important export homes to the west. It won't therefore take too much persuasion to ensure Kazakhstan's assistance if Russian imports are required when you look at the bigger picture.

In short if Russia do need to import, then it's highly likely that much of their needs will probably be Kazakh grain which wasn't destined to come onto the market this year. Effectively Russia may be "borrowing" some of Kazakhstan's own grain reserve safety net. And Kazakhstan probably isn't in much of a position to say no.

London wheat in particular needs an up day, having already fallen GBP8.50/tonne this week prior to today's session. It is also faced with a suddenly stronger pound following much better than expected July retail sales figures.

I still expect further price weakness ahead for EU wheat once the harvest wraps up and the inevitable increased winter wheat plantings start. That will also coincide with fund money exiting their November long positions. After that I can see some price appreciation as winter demand kicks in, and the cheaper sellers run out. By late spring however, assuming normal crop development and barring any further weather scares the market will begin to focus on the impending arrival of another bumper crop, the third in the past four years:

Click chart to enlarge