Wheat futures have had a significant price pullback over the past month. Quite frankly, in my opinion, prices may be too cheap.
While we are fresh on the news that the Black Sea Grain corridor deal has been extended for another 120 days, March Chicago wheat futures continue to hold on to the $8 a bushel price support range. News of the grain deal extension being inked ahead of the Nov. 19 deadline could have sent prices plunging lower but did not. Perhaps the fact that Putin continues to bomb parts of Ukraine reminds us that while the grain corridor is open, the war continues around it.
For now, the market is back to trading actual wheat market fundamentals. And the stark reality remains that ending stocks for all wheat in the United States is cut in half from just a few years ago. Global ending stocks of wheat continue to trend lower as well.
Global demand remains strong
Global demand for wheat remains strong. According to the most recent U.S. Department of Agriculture report, global demand for wheat is pegged at a whopping 790.17 million metric tons. Continued demand emerges from around the world as wheat is a staple in so many lives. Near Thanksgiving it was announced that the Taiwan Flour Millers’ Association purchased an estimated 43,400 tons of milling wheat to be sourced from the U.S.
Other global demand signs emerged when it was announced that a government agency in Pakistan issued a new international tender to purchase and import 500,000 tons of wheat and that Jordan’s state grain buyer issued an international tender to buy 120,000 tons of milling wheat, which can be sourced from optional origins. While it may be that the U.S. only gains a small portion of some of this business, it does continue to show that the demand is there.
And while global demand for wheat is pegged at 791.17 mmt, global production will fall short of that, coming in at 782.68 mmt.
Global production not perfect
Over in Argentina, the wheat crop has been compromised due to drought. That country’s wheat crop is said to now be closer to 10 mmt, versus last year’s production number of 22.1 mmt. Currently the USDA has Argentina production pegged at 15.5 mmt. I look for the USDA to lower the Australian crop number in the December USDA World Agricultural Supply and Demand Estimates report, which will likely bring global carryout down a notch, too.
While Australia was on the verge of a record crop, now it is said that Australia’s large crop has lost nearly 30% due to heavy rain causing flooded fields, sprout damage, quality issues, and now even some grain storage facilities are said to be underwater.
With the war in Ukraine, the Ukrainians will not be able to produce their normal amount of wheat. Ukraine’s ag ministry estimates winter wheat seedings were reduced from last year’s 6.5 million hectares to 3.7 million this season. While production in Russia is said to be higher, it is not enough to offset lower production in the rest of the world.
And don’t forget, here at home the drought continues in the Plains. A late November U.S. Crop Progress report said that 33% of the U.S. winter wheat crop is rated as poor to very poor compared to 22% poor to very poor one year prior.
Bottom line, wheat prices are on long-term support prices, and unless Mother Nature suddenly blesses the world with “perfect weather” and unless the Ukraine war suddenly stops tomorrow, $8 a bushel wheat might be a global bargain for end users.
Editor’s note: Naomi Blohm is a marketing advisor with Total Farm Marketing by Stewart-Marketing and she is a regular contributor to the Iowa PBS series “Market to Market.” She can be reached at [email protected].
