Wheat traded so far in 2022/23 is the lowest since 2015/16, high proportion of deals to be fixed

7.67 Mil MT have been traded, representing 67% of production. To be fixed amounts to 2.96 Mil MT and in relation to total marketed represents 39%, a maximum since at least the 1999/00 crop.

In a context of around 50% drop in wheat production for 2022/23, the scarce quantity of grain left to be traded in the market is noticeable. In the middle of last year, nobody expected production to plummet to such an extent; so much so, that by the end of July, producers had already traded 4.8 Mil MT, an absolute record of forward sales for that time of the year.

However, the weather factor began to take its toll and trades weakened sharply between July and early November, when the official start of the trade year began gather momentum. Currently, the total committed wheat 2022/23 is 7.67 Mil MT, which represents 67% of the estimated production. In relative terms, this is below the average of the last 5 years, which was 71% for this time of the year. On the other hand, of the total volume traded so far, 5.6 Mil MT are priced and in relation to the total produced is only 48.7%, the lowest ratio since the 2015/16 crop. Meanwhile, out of the total traded, the to-be-fixed volume is 2.07 Mil MT, the second highest tonnage since the 2005/06. In other words, a very high volume in relative terms, but only considering the drastically low production of this season.

When analyzing the total amount of deals made to fix for the 2022/23 wheat season, the volume amounts to 2.96 Mil MT as of March 8^th, i.e. 0.89 Mil MT of this total have been fixed so far. Although in absolute terms the 2021/22 commercial year saw a higher volume of to-be-fixed deals, the current crop fell by half compared to the previous year. The most striking fact is that in relation to the total traded so far, 39% of the business was done to be priced. The share of fixed deals in the total has been growing since 2019/20, although the current cycle far exceeds previous seasons and is a maximum since the 1999/00 crop.

One factor that helps to explain this trend is that in recent years the pattern of export purchases has changed, seeking to guarantee merchandise already at the time of sowing, and thus increasing the proportion of fixed deals. This season, as we approach the harvest, traded volumes did not increase strongly—when priced trades usually prevail above others—due to the drop in production and, unlike in previous seasons, this did not allow for a reduction in the high share of fixed price deals in the total traded.

In terms of fixed price deals, 83% of these were made with the export sector. This sector has bought 5.7 Mil MT of the current season and 1.8 Mil MT remains to be fixed. Based on data from trucks and train movements, it is estimated that between 2.3 and 2.5 Mil MT of wheat 2022/23 have been delivered to ports. That is, of the total purchased by exporters still remains to be discharged a significant volume of grain. It is highly probable that as deliveries are made, the prices of these deals will be fixed, although a significant decrease in the volume of grain arriving at the ports can already be seen. In February, 140,000 MT of wheat are estimated to be discharged at ports by truck, a drop of 62% compared to January. At the same time, in relation to what remains to be delivered is a very low rate of truck arrivals at port terminals. It is likely that the shift in exports has affected the dynamics of arrival of goods for export.

Meanwhile, the price context does not look good. The price of wheat has been falling steadily since the beginning of November, following the reference of the Cámara Arbitral de Cereales de Rosario.

By the end of October, the price reached 360 USD/MT, while on March 13^th it was around 290 USD/MT, a fall of no less than 70 USD/MT since then. These prices are above those observed in the years 2018-2021, although they are already below 2022. We can recall that last year at this time, Russia’s invasion of Ukraine had broken out which was a Black Swan that ended up quickly impacting in prices, given the importance of Ukraine and the Black Sea region in agricultural commodity trade.

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

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