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Russian weather continued to be a driver of global grain markets last week with improved conditions seeing the recent rally in global markets stall.
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Nearby Chicago Board of Trade wheat futures touched new highs of 720 US cents a bushel at the beginning of last week before ending the week down 19 USc/bu or 2.7 per cent.
Despite the correction in CBOT wheat futures, the reportedly improved Russian weather doesn't appear to have resulted in any major changes to estimates of the Russian wheat crop.
A Russian railway operator provided a new private production estimate at just 77.4 million tonnes last week, which is below the recent consensus of private estimates closer to 80mt.
The United States Department of Agriculture estimated Russian wheat production at 91.5mt in its May World Agricultural Supply and Demand Estimates.
Hence there is room for some revision down in the USDA Russian production projections, which will further tighten available wheat in the world and is already estimated at historically tight levels.
This means global wheat prices have had to push higher to ration demand.
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There are some signs of demand rationing happening, with Egypt reportedly raising domestic prices of their highly subsidised baladi bread.
Rising interest rates have increased the cost of capital and compounded the impact of higher grain prices for many developing countries seeing them reducing use or considering alternatives.
US wheat has rallied enough to price itself out of many Asian markets being about US$10 a tonne more expensive than equivalent wheat offers from Australia into the region, according to Argus.
Argus also reports that Australian wheat offers into Asia are holding at recent price highs, citing dwindling supplies in Australia and farmers' expectations of higher prices.
Similar behaviour was observed in Clear Grain Exchange last week, with Australian grain prices continuing their broad strength early in the week as buyers bid up to meet grower offer prices.
As international markets took a breather later in the week, offer prices in the Australian market generally held their ground, widening the bid/offer price spread in local markets.
Price direction from here will continue to be determined by crop production estimates and with the northern hemisphere harvest of winter crops beginning, we will get more accurate estimates.
India is emerging as a potential X-factor with poor crop conditions there seeing analysts predicting they could import 3 to 5mt this year.
If this was to eventuate it would add further to tight global grain balance sheets and support prices.
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