Wheat business falls to lowest level since 2016

Wheat business falls to lowest level since 2016

Caution reigns as the rains avoid key production areas, and with the expectation of a recovery in commercial conditions in the future. The international outlook focuses on the Black Sea but prepares for a tight 2023/24.

While the local market continues with a very discreet volume of business, forecasts for the new season are being cut back. The rains at the beginning of September over the centre and east of the country did not change the scenario, and this has led to cut production estimates for the 2023/24 season by 0.6 million tonnes, now totaling 15 million tonnes. However, we should not overlook the fact that despite the cut, the coming harvest looks better than the current season. Pending further rains, we could start harvesting in December with a 30% higher production than in the 2022/23 season.

The current season, millers and feed mills would maintain their level of purchases, despite the terrible season in terms of production; almost 7 million tonnes would be destined for domestic consumption. While external sales would suffer the consequences of the production decline, with only 3.7 million tonnes which would imply the lowest level of foreign sales since 2013/14.

On the side of the purchases of the new season, we find an atypical scenario at this stage of the year. Only 8% of the new season was committed and 64% of the tonnes have been marketed to fix. Among the reasons for this slowdown is the expectation that future trading conditions will improve, given that December wheat has already lost 20% of its value so far this year, either due to a price recovery or to changes in exchange rate and foreign trade policies in the run-up to the October elections.

At this stage of the year, the tonnes committed for the following season are the lowest since the 2016/17 season. Moreover, the proportion of sales for the new season, which have been committed to be fixed, has never been so high, the second highest record being for the season we are leaving behind.

How is the price trend in Chicago evolving?

Wheat prices in Chicago have been on a marked negative trend in recent weeks. In mid-July 2023, after the non-resumption of the Black Sea grain agreement between Russia and Ukraine, prices began to soar. Between 13 and 25 July they rose by 13%.

The market began to tighten, and any report indicating a worsening of the dispute had a direct impact on prices. Geopolitical uncertainty had to be added to the mix. However, wheat found an escape route out of Ukraine into neighbouring countries. While Russia’s determination to sell “cheap wheat” to African countries imposed the downward trend that Chicago has maintained.

International wheat outlook

Last week, the US Department of Agriculture reported projected production and ending stock changes for the new season globally and by country. Global wheat production is expected to decline. Australia, which would lose 35% compared to the 2022/23 season. If realized, this would be the first global year-on-year drop in wheat production since the 2018/2019 season.

On the stocks side, we would also find an adjusted scenario, according to estimates, the group of the 8 largest exporters would have final stocks for the 2023/24 season of 45 million tonnes, the lowest level in more than a decade. Forecasts for world consumption have also been adjusted and would exceed wheat supply for next year.

Given the international scenario for next season, with major exporters tightening supply and demand growing, we would expect the market to follow the crop closely. In fact, Chicago reacted higher after the report, although cheap Russian wheat continues to put downward pressure.

The new wheat season would not be without complications. It will be important to follow the evolution of the Australian and Canadian production prospects, as well as the path of the Black Sea conflict. If Eurasian wheat continues to sell “cheap”, it will have an impact on prices in the North American market. In this context, and in the face of tight supply levels, the world is positioned for next year with a stock/consumption ratio of 32%.

Source: https://bcr.com.ar/

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