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Wheat: Too Many Upward Price Pressure

Published 01/30/2023, 02:44 AM
Updated 07/09/2023, 06:32 AM

Wheat prices continue their volatile upward trend and hit record levels this marketing year and are expected to remain elevated into next year. They will surely remain in primary focus of agricultural commodity traders going forward. 

Although the United States typically produces only about 6-7% of the world’s wheat, it is a major wheat exporter. As competition in global wheat markets has grown, farmers’ returns for planting wheat in the U.S. have declined relative to other crops, which has additionally encouraged some farmers to reduce wheat plantings. Changes in farm legislation in the mid-1990s that allowed farmers more flexible crop choices also reduced wheat acreage.

Meanwhile, USDA’s National Agricultural Statistics Service (NASS) just released its first projection of U.S. winter wheat plantings for 2023/24 in its so-called Winter Wheat and Canola Seedings report. According to the report, U.S. winter wheat planted are is projected at 37 million acres, up 11 % from last year to the highest level since 2015/16. 

U.S. wheat exports for June through November 2022 dropped to a total of 427 million bushels, down 2% from the same period last year. According to USDA, FAS U.S. Export Sales data, U.S. wheat export sales total commitments (the sum of outstanding sales plus accumulated exports) as of January 5, 2023 were at 15.1 million metric tons, down 7% from the same time last year. This represented 71% of the full marketing year estimate of 775 million bushels.

That was lower than the percentage of estimate met by total commitments “in 9 of the last 10 years”, suggesting that U.S. wheat exports keep lagging behind, but they couldn’t pick up without other major producers, not involved in geopolitical conflicts naturally reducing their crop acreages, like Australia’s, willingness to contribute to compensate the global shortfall of wheat deliveries.

Meanwhile, India’s Food Corporation (FCI) announced this week it was going to release 3 mil mt (metric tons, $386.40/mt) of wheat from government stocks to rein in prices. Domestic wheat prices soared 35% YoY on geopolitical issues and crop loss last year. According to the statement, offloading 3 million mt of wheat through the scheme within a span of two months through multiple channels is likely to have an immediate impact on the soaring wheat and flour prices.

India’s domestic supply aggravated over the past few months as the crop yield shrunk due to severe heatwaves and amid higher export demand in the aftermath of the European geopolitical escalations. As of Jan. 1, FCI had 17.2 million mt wheat in its inventories, against the buffer requirement of 13.8 million mt, according to data released by FCI. The government will offer wheat to traders, including flour millers and bulk buyers, through e-auction for a maximum quantity of 3,000 mt per buyer, per auction.

India's wheat exports have been banned since May 13, 2022, as the government sought to curb rising prices. Government unlikely to reverse export ban until fresh crop hits markets.

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