THERE are some modest changes starting to unfold in the global wheat market that may help put a floor in prices, and deliver slightly higher prices than recent lows for our harvest this year.
One change is that sales to Egypt, the world’s largest importer, are probably about to restart.
The trade there has been closed down for some time now, because of a zero tolerance for ergot being applied to all imports.
That is an impossible benchmark to hit, and rather than risking making a sale and having a distressed cargo with no home, traders have simply walked away from that market.
We are now at the point where Egypt needs wheat to prevent food shortages at excessive prices.
The last thing the country needs is a hungry population being pushed to the limit.
Last week the zero tolerance was removed, but the testing is still going to be done on arrival, rather than at the port of origin.
That might still generate a few issues for traders, so even though wheat was offered at last week’s tender, prices were high to compensate for the risk of rejection.
There is other demand coming from North Africa as well, with the EU making a 300,000t sale to Morocco.
That, combined with the offers to Egypt, was enough to see a modest lift in EU wheat futures last week.
We are also seeing a shift in India, where import tariffs on wheat are being removed.
Last year’s production was down, and internal wheat prices have lifted.
Imports are needed to keep wheat prices at affordable levels for consumers.
A few years ago India was a net exporter of wheat for several years, contributing to low wheat prices in 2012/13 for example.
The shift to imports will provide a new outlet for a market where supplies are seen as burdensome.
China is another source of new demand.
Their crop is projected to be slightly smaller this year and quality from their last crop is down, lifting their demand for higher quality imports.
They have been regular importers of modest volumes of higher quality wheat, but this might increase in the next 12 months.
On the supply side it looks increasingly like the Australian crop will be capped by being too wet in eastern Australia, and from frost damage in Western Australia.
That does not help us, but it will prevent another significant upgrade in the size of the 2016-17 global crop.
On the negative side, Russia are cancelling their export tax on wheat following a record crop that needs to be shifted.
There is a question mark over their quality, but with such a large crop this year they will probably be able to meet milling standards on a reasonable amount of export tonnage.
Russia should be more active in Middle East and North African markets, and possibly into India.
That will take up some of the slack left from the EU, and absorb some of the new import demand, but at least those factors will prevent Russian wheat from flooding global markets, which would have been the case if the EU crop had not been pegged back this year.
In combination there should be enough starting to happen to begin supporting wheat values, with the real prospect of price rises coming if this translates into increased export business for the US.
