For over 12 years we have been able to say it's all about Russia, and that was certainly the case again last week.
Just as CBOT futures looked poised to plunge further below the critical 500 USc/bu level, the Russian factor kicked in and delivered a sharp rally to head the market northwards again.
With Russia at the head of the leader board in terms of global exports, the market has become used to reacting to fundamental supply and demand issues from the Black Sea region generally, and specifically from Russia. When we add politics to the mix via various protectionist policies from that region, a year no longer goes by without it all being about Russia.
Mid last week a number of factors came together to send CBOT futures upwards. One was currency, with a lift in the Russian rouble working to make Russian wheat more expensive in global markets, tipping demand back towards the EU and the US.
We also had a production forecast released that pulled 5 million tonnes off the Russian grain crop (wheat makes up the largest proportion), leaving it at 120mt, down from 121.3mt last year. That opened up speculation that Russia would extend its export quotas, particularly as domestic flour prices in Russia reach record highs.
All of that seemed to be enough for the market to shrug off forecasts for rain across dry areas of southern Russia and Ukraine. Key export growing regions in southern Russia have only had 25 per cent of their normal rainfall since the end of February. That explains the crop production downgrade, but also highlights how important rains will now be to the outlook from here.
Of course, a bit of support from elsewhere also does not go astray. Western Europe still remains a region of concern, with warmer and dry weather still in the forecast for this week. This is expected to see a further decline in soil moisture levels.
The dry in Europe is supporting European wheat markets, with a flow over to CBOT futures as well. Recent rains have helped, but have not eliminated the drought concerns, particularly against current forecasts.
In global trade EU exports are also strong, particularly as supplies from Russia dry up now their export quota is filled. However, domestic use within the EU has been hit hard by the coronavirus, with food, feed and industrial sectors all being affected. That is keeping EU stocks higher than forecast.
And then it's back to Russia, as market analysts realise that the direction for new season EU wheat prices will be determined by whether export volumes form Ukraine and Russia are allowed to flow freely, without government intervention.
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