There’s a lot of wheat, including feed wheat, in the world right now — in fact, near-record levels. However, if you look at stocks among major exporters, they’re rather snug. The possibility exportable supplies could be tight in 2021, depending on how the weather plays out, particularly in Russia and the U.S., is encouraging as high of prices we’ve seen in five to six years, says Arlan Suderman, chief commodities economist at StoneX Group Inc.
How does China fit into the picture? Half of the wheat in the world is in China, he says.
“We’ve definitely seen a move toward feeding more wheat in China,” Suderman adds. “In fact, USDA raised their wheat feeding estimate for China by several million metric tons in the last WASDE report. As corn prices have hit record highs, we’ve seen wheat take up anywhere from 20% to 30% of hog rations in parts of China, as well some barley.”
The Chinese government has said they want to be self-sufficient, so they’ve been pushing wheat consumption. Initially, the wheat auctions were rather aggressive, but they have dramatically slowed down in recent weeks, largely because the first wheat auctioned off was in areas more conducive for feeding, he explains. The higher prices were necessary to pull wheat out of reserves for feeding. While location matters, Suderman thinks over time feeding wheat will continue. That means China’s reserve will work lower, but that will take a few years to occur.
Switching gears, Russia, and to a lesser degree the Black Sea, predominantly sets the world wheat price. They get rid of all their exportable wheat every year by setting a price to ensure that happens. The government is taking over more of their export infrastructure, so it can control price.
That leads us to the crop currently in the ground. Approximately 22% of Russia’s wheat is now raised in poor conditions with very little snow cover. While they are getting some snow cover as cold air moves in, the crop is vulnerable to winter kill. Moisture is going to have to improve into the spring or Russia could have another short crop that would reduce their exportable supplies.
A rumor has been circulating that Russia is going to limit exports from Feb. 15 to June 30 – and it was recently confirmed with an export quota system and export tariffs. Egypt tried to buy wheat ahead of the new system, Suderman says, but prices were still too high — which means their stocks will be relatively tight going forward. Those dynamics allow U.S. wheat prices to float higher.
At the end of November, 46% of the U.S. crop was rated good to excellent. Typically, that number is closer to 54%. The wheat state of Kansas came in at 33% versus the five-year average of 48%. Colorado was just 20% good to excellent.
In areas such as Oklahoma and southern Kansas, the rain and snow has been falling and it looks like they’re going to have a good wheat crop. The rest of Kansas and into Colorado, Nebraska and large portions of Texas is vulnerable to winter kill. Hopefully, spring moisture will salvage a crop.
“Chicago futures are near six-year highs and Kansas City is just 5% to 10% below six-year highs,” Suderman says. “At those prices, you have to respect sales and marketing. Can it go higher? Yes. It can also go lower. I think prices will hang around waiting to see how the winter plays out. In another 30 to 45 days, we’ll start to have a better picture of how the crop is shaping up in the Black Sea as well as in the Plains. That will set the direction in terms of if the market goes higher or pulls back.”
AGWEB
