A Few Wheat Market Fundamentals

01/11/11 -- Whilst I fully expect the gathering storm clouds over Greece to continue to dominate events for the remainder of 2011 and quite likely beyond, I thought that a résumé of a few of the market fundamentals might not go amiss, just in case we forget their relevance.

With the harvest just about over in the FSU now, we should have a pretty good handle on how big the crops are out of that region this year. The answer to that is pretty bloody big.

The Russian grain harvest is 97% complete at 96 MMT in bunker weight or 90 MMT in clean weight. That's an increase of 48% on last year. Wheat accounted for 68% of the crop last year, but 65% could maybe be closer to the mark this time round leaving us with production of maybe 58.5 MMT or so - some 41% higher than in 2010.

Kazakhstan had just brought in a grain crop of 29.5 MMT in bunker weight, knock off 10% for cleaning and work on approximately 85% of that being wheat and we have a post-Soviet era record grain crop of 26.5 MMT and a wheat crop of around 22.5 MMT, up more than 130%.

In Ukraine harvesting is 93% done producing 50.1 MMT of grain, 25% up on last year and suggesting that the Ministry's recently revised forecast of final output of 54 MMT is spot on. Corn harvesting is 70% complete at 14.6 MMT, suggesting a final crop of around 21 MMT. Their wheat crop this year is likely to be around 22.7 MMT, up 35% on last year.

That's the cheap sellers all nicely stocked up for Christmas then, so what about everybody else?

Well here in Europe we have a wheat crop similar in size to last season, probably marginally higher, yet our exports are currently running 44% down on year ago levels, far more than the 30% reduction that the USDA is currently predicting. The French have made no sales to the world's biggest buyer Egypt at all this marketing year and neither have the US, Australia, Canada or Argentina.

Australia are just about to start their harvest which is forecast anywhere between 25MMT and 27 MMT, in line with last year's record output yet the substantial volume of unsold wheat left over from last season guarantees that they will have a record amount of wheat to sell this year. They've managed to make some inroads into Asia with this lately, selling cheap feed wheat to replace US corn.

Step forward India, they got plenty of wheat in store too, so much so that although they aren't normally an exporter they've been making sales themselves recently. A late finish to the monsoon season means that soil moisture levels here are better than normal, leading some analysts to forecast a record crop of 87-90 MMT for next season's harvest in March/April. Planting of that crop is expected to be completed in about three weeks time.

This is all starting to look like unless you want to compete with the cheap sellers than you're going to have to be prepared to sit and wait. That means much larger 2011/12 ending stocks for most of the major exporters outside of the Black Sea than current numbers suggest.

Throw the unfolding Greek tragedy into the mix and it looks like things are going to get worse before they get better.