Frontrunner

European wheat futures rallied further this week, striking new record-high levels as bullish drivers continue to influence markets. Adverse wet weather across east and southeast Australia has proved damaging for wheat crops with reports of sprouted grains and quality wheat consigned to the feed bin. The world’s major milling wheat importers were hoping that the arrival of a predicted bumper crop in Australia would ease the tight supply of quality wheat and cap record prices but that may no longer be the case.In New South Wales, where harvest was expected to achieve up to 11 million tonnes, reports suggest that between 50-75% of the crop could be damaged. Better-than-expected yields were reported in Western Australia but managing lower-than-usual proteins is a further complication for exporters to manage.

European wheat futures struck new record highs in volatile trading this week. Markets continued to rise, reacting to further notable purchases from some of the world’s major wheat importers while being mindful of the likelihood of further export restrictions for Russia, the world’s primary wheat exporter. Algeria weighed in with a chunky purchase, thought to be up to 800,000 tonnes, having to pay up to $384/t including freight for shipment mid-December to the end of January. The country relaxed its bug damage specification, now allowing for up to 1% presence, which enables the country to source 250,000 tonnes of this total from Russia. It has the option to source the remainder from a range of origins as wide apart as Poland and Argentina.

The United States Department of Agriculture (USDA) published its November World Agricultural Supply and Demands Estimate (WASDE) report early this week, bringing an end to a short spell of declining prices. A revised estimate for world wheat stocks was released, which was below average trade estimates. The USDA cut world wheat stocks from 277.18 million tonnes to 275.80 million tonnes. This revision changed the negative market sentiment. The profit-taking that was seen from the middle of last week reverted to bullish enthusiasm.Overall, changes for the wheat balance sheet were modest and few but worth noting. The USDA reflected increasing import needs and revised its exports estimate upwards to 203.16 million tonnes from a previous figure of 199.63 million tonnes. The increase in the exports total was aided by an additional one million tonnes exported from Russia, from 35 million tonnes to 36 million tonnes. However, this is in contrast to the figures released by Russian analyst group SovEcon, which has cut its own Russian wheat export estimate to 34 million tonnes to account for the impact of export taxes.SovEcon noted more demand from the EU, increasing its European demand estimate from 35.5 million tonnes to 36.5 million tonnes. This is well ahead of other estimates and leaves an untenable ending stock which is too low to meet domestic demand strategic needs.