New season wheat futures remain firmly above $A300 a tonne, having been above that benchmark since December 27. December 2020 futures spent much of last week above $A310/t. Nearby futures (the March contract) have been above $A300/t for six of the previous seven trading sessions up to the end of last week.
Two factors are at play to provide ongoing support. One is the threat of Russia curbing wheat exports, and the other is a transport worker strike in France that is threatening to now slow the pace of EU wheat exports.
In the case of Russia, it has been flagged for a few weeks now that they were looking at ways to curb the volume of exports if they needed to in the future. They then announced quotas to limit total grain exports to 20 million tonnes for the January to June period this year.
Although exports are not expected to reach those levels anyway, it still sent a warning shot across markets suggesting that if they need to, the Russian government will step into prevent domestic grain prices from rising too far.
Whether more meaningful restrictions on export volumes are imposed in the short term may be dictated by the unfolding season as we move through 2020. While we know that it is reported that Russia has planted a record winter wheat crop this year, if drought concerns increase, or winterkill becomes an issue, the Russians might make their move to curb exports sooner rather than waiting for the smaller crop to become reality.
The risk associated with government interference in wheat exports has made some importers nervous and pushed risk premiums into futures prices in case wheat needs to be supplied from other origins.
That brings us to the transport strike in France. Initially the impact has been minimal as stocks already in export positions continued to be loaded and shipped. However, as the strike continues stocks of available grain are dwindling to the point where the flow of exports could be disrupted.
Again, this potentially pushes more demand onto other suppliers. Russia would not be considered an alternative source, and while Ukraine might be in the mix, the pace of their export program has been so strong so far this year that their ability to increase, or even maintain, their pace of exports in the second half of the year has to be questioned.
While these factors supporting the market are geopolitical rather than fundamental supply and demand issues, the market continues to watch how the 2020 season is unfolding, with stories of reduced plantings in the United States and European Union, and dry conditions in Russia at this early stage.
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