Domestic wheat prices rallying on weak harvesting progress 16 July, 2020 at 12:07

Last night`s CBOT rally assures us, that the market has found new factors of support, despite the harvesting is in full swing in the Northern hemisphere.  

Market operators report on significant gains in domestic prices for wheat in Russia. By contrast FOB price still averages at USD 207/MT, while domestic market moved to the level assuming FOB should be somewhere at USD 212/MT.

In addition to this, for the last two weeks local agencies in Russia have been downgrading their wheat production estimates. Initial estimates were seen at 80 MMT and higher, but now market consensus is at 77-78 MMT. In its latest report, USDA lowered its estimate for Russia by 0.5 MMT to 76.5 MMT. 

Ukrainian prices have not reacted yet, but similar rally is expected anytime soon. 

According to market sources, the situation is the same in neighboring Romania and Bulgaria. 

Southern Europe, Ukraine, Russia have suffered from the drought, particularly in the regions where harvesting starts. And harvesting works in the regions with higher productivity are delayed by rains. 

Farmers in the South are limiting grain sales expecting further price rise and trying to sell wheat at the level to cover the costs – the point that turned out to be higher this season. Seeding costs are higher than last year and average yield in some Southern regions is much lower. 

Traders closed the export deals for shipments in July, but the number of contracts for domestic delivery was lower compared to the previous year.  Thus, the market of buyer has shaped, which means we should expect further price rally. 

It proves our forecasts, expressed in mid-spring, that wheat price will see some gains this season.  The price rally commenced earlier than the seasonal trend.  

No doubts, price decline can be expected ahead, when harvesting is going to reach the regions with better yields. But for the high quality wheat, these losses will be limited as this season wheat quality suffered partially from the drought in the grain filling period and partially from the rains during harvesting.