Russia may tighten new crop supplies

There is some pressure on wheat stocks in the European Union, Russia is causing an artificial tightness by trying to limit exports via quotas and taxes and Ukrainian supplies are also tight.

Outside of that, though, wheat stocks are still robust in the United States, Canada and Australia.

Stocks may be on the decline in Canada and the US as well, but they are not going to fall to critical levels that would warrant serious concerns about global wheat stocks.

Some are comparing the current lift in grain prices (and global food prices) to the price rally we saw in 2008, but the fact that wheat stocks are not tight is the main difference and it may prevent corn and soybeans from following the trajectory of 2008 as well.

We are also seeing a slight shift in relative pricing in the wheat market.

In reality any tightness in grain supplies is right now.

That has meant that nearby futures prices have risen faster than prices for contracts later in the year.

In other words, prices for old season wheat are higher than prices for new season wheat.

This is a pattern across other markets as well, particularly for canola.

Now we have the market readjusting slightly.

Old season wheat stocks are not as tight as for other grains and there is no need to ration demand to the same extent.

That is putting some pressure on wheat futures overall.

Then we have the market interference from government interventions in Russia and Argentina, for example.

In both cases, they are attempting to limit the export of grains in the near term to control internal grain and food prices.

Russia is the main one, but they have now flagged ongoing export taxes going into the second half of the year and effectively taxing exports of new season wheat as well.

Russian farmers are reacting in two ways.

They are not as likely to hold old season grain if it still going to be taxed after June and they are reassessing their spring planting programs.

It is very likely that they will pull back on wheat.

So suddenly the global wheat market is not quite as tight, but the risk of reduced production from the world's largest exporter is tightening up the supply outlook for later in 2021.

We are seeing that with a closing up of the gap between nearby futures and December futures.

A week ago, December futures were quoted at a $8.79 per tonne discount to March futures.

This week that spread has closed up to just a $1.79/t deficit.

Soon December futures should be trading at a premium again.