Grain Snippet: Wheat Bulls Take Control
A deeper dive into the 2024/25 wheat supply and demand suggests a moderately bullish outlook, driven by tightening global supply and weather uncertainties in both the US and Russia adding layers of complexity.
Bearishly, China’s import demand has been slower than expected, with a potential 8MMT y/y decrease in Chinese imports and reflected by a significant reduction in monthly import pace for the last half of 2024. While this could dampen price upside, it doesn’t completely derail the market. Additionally, Australia’s wheat production could be skewed upward by 1-2MMT to land at 35.5MMT, this is based on higher-than-expected receivals reported by bulk handlers. This could increase supply and put some pressure on local prices.
The EU’s wheat production forecast for 2025/26 looks strong, with a 13.1MMT (10.77% y/y) increase expected, bringing total forecast production to 134.7MMT. However, while this could add to the global supply, it’s not necessarily enough to offset the lower production y/y in Russia and Ukraine.
Russian wheat exports have slowed significantly, dropping 56% m/m from December to early January. Forecasts have Russia’s total annual exports pegged at 42.8MMMT – a slump of 10MMT y/y and their stocks-to-use also continue to tighten. This trend is expected to continue, reducing export availability. Additionally, Russia’s 2025/26 production outlook is poor due to ongoing dry conditions in some key wheat production areas, which could lower potential yields and further limit supply.
Adding to the bullish theme, the tightest stocks-to-use ratio for major wheat exporters since 2007 signals limited wheat available for sale, potentially supporting prices if demand picks up. Whilst the global market has become accustomed to operating with tight stocks, it has occurred in an environment where Russia produced multiple record crops and supplied the world with strong exports. This year, with Russian exports being curtailed we cannot rely on the Black Sea to placate the market. As always, the market needs a supply shock to trigger the Funds to unwind their large short position, at this stage the market is delicately poised—too much on either side could easily tip the scales.
The US also faces challenges, with potential winter kill damage from a January cold snap. While the extent of the damage is uncertain until US spring comes around, potentially further tightening on global wheat supplies. Additionally, dry conditions in key wheat regions in parts of US could potentially lead to lower-than-expected yields.
Domestically, wheat prices have remained steady around $348/MT for ADE APW, despite strength in futures. Typically, wheat prices dip between February/March before rising in April/May. Whilst a weak Australian dollar and poor South Australian yields could moderate seasonal weakness, global demand remains lacklustre, and Australian exporters do not appear anxious in covering shipping commitments. It is pleasing to see that a combined 330KMT has been added to the SA Shipping Stem over the past month, mostly in Wallaroo and Adelaide Ports. With US wheat futures grinding higher over the last couple of weeks, we have seen local basis weaken as cash prices have not followed suit. Despite sluggish Chinese demand, there is growing optimism that basis and flat price can improve into the seasonally strong period of April / May. This is predominately motivated by tightening grower stocks, improved coverage on the shipping stem and a reduced pressure of Black Sea supply.
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