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Production setbacks in the European Union (EU), Canada and most importantly the Black Sea Region (BSR) has significantly altered the global wheat production outlook.
Rabobank has downgraded 2010/11 global wheat production by 30 million tonnes and is now forecasting global production to reach 644.2 million tonnes, down 34.6 million tonnes YoY.
Russia has been the primary fundamental focus of the wheat market rally. Russian wheat production forecasts have been downgraded substantially over recent weeks as extreme drought has decimated their spring wheat crop.
Rabobank’s Russian wheat production forecast is currently 45 million tonnes, a full 8 million tonnes below the USDA’s July estimate and 15.8 million tonnes or 25 percent below 2009/10 production.
Russian Prime Minister Putin today announced that there would be a ban on all Russian grain exports valid from 15 August 2010 to 31 December 2010.
Russian exports were expected to total 9 million tonnes. However, we have since revised this down to 3 million tonnes. While the ban allows traders to legally renege on current export commitments by way of Force Majeure, a number of commercial market participants have criticised the timing of the ban, which many believe will impact the country’s reputation with major importers like Egypt.
Current supplies appear sufficient to meet the Russian shortfall. However, stock levels in major wheat exporters will exist at levels that leave that wheat balance sheet vulnerable to any adverse production impacts going forward.
It is worth highlighting that the market is nowhere near as tight fundamentally as it was during the 2007/08 grain market rally and without further bullish news to support current momentum we expect wheat values to ease as panic buying recedes.
However, the fundamental dynamic across the whole grains complex has changed, with the burden of proof now firmly with the bears.
