BMI View: The progress of the 2014/15 sowings over the coming months will be crucial in estimating the timing of global price moderations over 2014. Prices have already moderated in recent months on the back of better-than-expected final official estimates for the 2013/14 wheat harvest, which will support a return of Russian wheat to export markets. We believe the country's export presence will increase in the coming years, especially towards Asia.
The progress of the 2014/15 sowings over the coming months will be crucial in estimating the timing of global price moderations over 2014. While there have been concerns about flooding in Russia delaying sowings for 2014/15, the outlook for the coming harvest is better than previously expected. We maintain our forecast for the Russian wheat harvest to increase again to 56.2mn tonnes in 2014/15. This will take the country's wheat production back up to its 2011/12 level but still below 2008/09-2009/10 levels. In line with this, we keep our bias for CBOT prices to break below the USc600/bushel level in H114. We forecast CBOT wheat prices to average USc610/bushel in 2013/14.
Better-than-expected final estimates for 2013/14 wheat production in Russia have helped wheat prices lower in recent months as they reached support at USc600/bushel. We have revised our estimate for 2013/14 wheat production in the country to 54.4mn tonnes (from 53.0mn tonnes previously), as the harvest was completed in December. Even though weather conditions in the country during harvesting were suboptimal, resulting in delays and quality concerns, Russian wheat yields for 2013/14 came in at 2.3 tonnes per hectare (ha), largely above last year's final estimate of 1.8 tonnes/ha.
|Back To Support|
|Front-Month CBOT Wheat (USc/bushel, weekly) & RSI (below)|
Export Presence To Grow
We expect lower domestic prices to drive a resurgence in Russian exports over the coming months. The strong final official estimate pushed down local wheat prices and made the country competitive again on export markets. Wheat prices in Russia in the week to December 27 began to slide after rising for 11 straight weeks on increased demand from both domestic consumers and exporters. The average producer price of grade 3 milling wheat fell during the week by RUB100 (US$3.07) to RUB8,200/tonne including value-added tax. As a result, the country made a comeback on export markets, obtaining a tender for 420,000 tonnes of wheat from Egypt in December after months of low export volumes because of uncompetitive export prices. In January, Russia again obtained part of the recent record tender for 535,000 tonnes of wheat from Egypt, but no detailed information has been released on the exact amount and price of the tender. We believe Russia will play a larger part in future Egyptian wheat tenders, especially as the global export season enters a trough before the start of the 2014/15 season.
|China Getting Hungrier|
|Select Countries - Wheat Imports ('000 tonnes)|
Over the medium term, we believe Russia will have an increasingly important role on export markets, especially in Asia, where the country has little presence so far. We mentioned previously (see 'Export Potential Shifting East', July 9 2013) that Russia's United Grain Company plans to develop a grain terminal on Russia's Far East coast in order to directly supply Asian markets, for which import demand is booming. China, for example, is expected to triple its wheat imports in 2013/14. The US and Australia, traditional suppliers for the country, will not have sufficient wheat production surpluses to accommodate this demand over the coming years. In general, price-sensitive wheat buyers, such as China and Indonesia, will increasingly favour Russia's cheap output.
|BMI Russia Wheat Production*||49,400||63,700||61,770||41,508||56,240||38,000||54,400||56,200|
|Wheat Yield (tonne/ha)||2.1||2.4||2.3||1.9||2.3||1.7||2.3||-|
|Wheat Area Harvested (mn ha)||23.5||26.1||26.7||21.7||24.8||21.3||23.5||-|
|% Of Global Production||8.1||9.3||9.0||6.4||8.1||5.8||7.2||-|
|% Of Global Exports||10.7||12.7||13.5||3.0||13.7||8.0||10.2||-|
|BMI Global Wheat Production**||612.0||682.7||684.1||653.0||695.0||655.0||710.7||716.8|
|IGC Global Wheat Estimates**||612.1||682.8||684.3||650.0||672.0||656.0||698.0||na|
|Note: ** mn tonnes; *000 tonnes; FY14=07/2013 to 06/2014 Sources: USDA, FAPRI, IGC, BMI|
|Note: H=Harvest and P=Planting; Source: USDA, BMI|