Russia Discounting Weighs On Big Commodities Loser, Wheat
Investing.com | Mar 08, 2019 09:38
Just months ago, there was talk that Russia might re-introduce cartel-like export controls to defend prices of wheat , its main agricultural export.
Now, Russian exporters are bidding to land the grain to international destinations as cheap as they can to undercut their European competitors, as a global glut pulls the bottom out from the wheat market.
Wheat Daily Chart
Wheat Futures on the Chicago Mercantile Exchange are the biggest commodity losers so far in 2019, down almost 13% on the year. Last year, wheat was the second best performer among more than 30 raw materials, rising 17%.
h3 Cheaper Russian, European Offers Pressure U.S. Wheat/h3Jack Scoville, grains analyst at The Price Futures Group in Chicago, who witnessed the transition in Russian wheat marketing strategy over the past year, wrote in a summary this week:
“Ideas and reports of cheaper offers from Europe and Russia continue to put U.S. wheat values down.”
On Thursday, CME’s spot contract for wheat futures, May, hit a 13-month low of $4.3762 per bushel. It is set to finish this week down 4% for a fifth consecutive week of losses, its worst losing stretch in 2-1/2 years.
It’s a remarkable change for a market that just about six months ago was hitting 2-1/2 year highs from a global squeeze in supply.
h3 Strong Sell Recommendation/h3Technical analysts at Investing.com have a “Strong Sell” recommendation for May wheat, forecasting a support level at as low as $4.1904. Based on Thursday’s settlement, that still gives bears room to sell the market down by almost 19 cents, or another 4%.
How did things get this bad for wheat?
Bryce Knorr, senior market analyst at Farm Futures, offered some clues, writing in a mid-February column:
“The wheat market had a bright, shining moment last summer, when threats to crops across Europe and into the Black Sea and Australia raised hopes the time was right for the U.S. to begin selling lots of wheat to a hungry world.”
Cartel-style controls by top exporter Russia provided another reason to bid prices up.
After a successful campaign in restricting exports during the summer to aid the rally in wheat—just like its current production-cutting pact with OPEC to oil prices—Russia planned to limit shipments on some 18 million tons of the grain through June this year, industry sources said.
h3 High Yields, Benign Weather Lead To Bumper Crop/h3
Get The App
That plan never came through. Knorr said better-than-expected grains yields outside of northern Europe and Australia resulted in a bumper crop as 2018 drew to a close.
He added:
“Sales, by and large, were slow to materialize. Business finally picked up as the calendar flipped to 2019, but it may be too little, too late for a wheat market on the verge of life support.”
Scoville said that aside from the boon to global production from good European and Australian yields, benign weather in the U.S. was also helping the domestic wheat crop.
He added:
“The fall season in both winter wheat regions featured a lot of rain that hurt harvest and planting all season long. Wet weather has continued for much of the winter, and it is likely that the crop will have good soil moisture to work with as it comes out of dormancy in the next month."
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.