The wheat contract for July delivery rose as much as 1.2 percent to $6.825 a bushel on the Chicago Board of Trade, the biggest intraday increase since May 6, and was at $6.81 on Tuesday in Singapore. Prices rose less than 0.1 percent on Monday, halting the longest run of losses since July.
Wheat advanced the most in two weeks on speculation that an eight-day slump may spur purchases from some investors and after a U.S. government report showed crop conditions deteriorated in the world’s biggest exporter.
The weekly National Agricultural Statistics Service (NASS), released Monday, revealed 57% of winter wheat acreage in the 18 major states has headed by May 18, in line with the 5-year average. Meanwhile, 44% of crops were reported in poor or very poor condition, while only 29% were said to be better than average.
“Generally the rain was viewed as stabilizing parts of the U.S. wheat crop that were viewed as a concern, so it helped in that regard but may not improve yields,” said for Bloomberg Paul Deane, analyst at Australia & New Zealand Banking Group Ltd.
The proportion of US winter wheat rated “good” or “excellent” dropped 1 point to 30% in the week to Sunday, data from the US Department of Agriculture showed. That was the lowest rating for this time of year since 1996, when 27% of US winter wheat was viewed as being “good” or “excellent”.
In Europe, wheat in Russia’s Southern Federal District may face a heatwave by the end of the week, with temperatures forecast to exceed 30°C (86°F) this weekend, Paris-based farm adviser Agritel said. Temperatures in the region, which is already suffering from a worsening water deficit, may locally rise to 35°C, Agritel wrote in an e-mailed report. The effects on grain may hurt yields, the adviser said. “This area mainly has winter crops, currently in the stage of grain filling,” Agritel wrote. “The risk of heat stress blocking grain filling, with a direct impact on productivity, can’t be discarded.”
But temperature may not be the biggest threat for wheat around the Black Sea. For the time being, concerns are fading about the impact of the Ukraine crisis on the grains market, with importers continuing to buy wheat from Ukraine despite political turmoil. “Prices rose on a weather market, combined with the crisis in Ukraine. The crisis is now easing, there is less anxiety, and the problem of a smaller hard red winter wheat crop was already priced in,” a European trader said.
Although Russia exported record amounts of wheat throughout the first quarter, the issue might be with next season crop which will be harvested in July. Right now, nobody dares order this new Russian wheat harvest. This has less to do with potential logistical problems and more with fears of financial sanctions against Russia, says François Luguenot, market analyst at InVivo.
If the United States decides in the coming weeks to step up sanctions and prevent Russian banks trade in dollar, they will no longer be able to receive payments or open a letter of credit: commercial transactions will be impossible. This is exactly the situation experienced in Iran: Tehran found itself unable to sell its oil in dollars on the international market and had to barter to export its crude to India. Few analysts truly believe that the West will have the guts to impose such financial sanctions on Russia, says François Luguenot, but it is a sword of Damocles dangerous enough for any potential buyer. If financial sanctions are actually enforced, it would potentially be 15 to 20 million tonnes of exportable Russian wheat, 13% of world trade, which could not leave Russia. Prices would likely soar.
An analysis of wheat productivity found global yields for the world’s most widely grown grain were on average 1.4 percent lower than normal in El Nino years, according to the study published in the journal Nature Communications. Signs are for an El Nino event to start later this year, according to the World Meteorological Organization.
Based on the area harvested worldwide in 2000, about 22 percent of wheat suffered “significant” negative impacts from El Nino, including in south and east Australia, Mexico, parts of China and the northwest U.S., the study indicated. About 6 percent of wheat benefited significantly, including in parts of Russia, Argentina and northern China, the researchers found. Global wheat yields were 4 percent lower than normal in La Nina years, the researchers found.