CHICAGO Board of Trade wheat futures spent much of last week in a choppy sideways pattern in a range between US530 and US550 cents a bushel.
This is well down from the peak in the market earlier in the month when prices spiked up to US593c/bu on the September contract.
That all changed last Friday, when prices surged US18c/bu on the day, to close about US560c/bu (close to US580c/bu on the December contract).
The driver for the turnaround was a report suggesting Russian government officials had met with grain exporters to discuss export volumes for the current year.
The suggestion is that exports may be limited if volumes get too high, so that domestic supplies are assured, and domestic prices remain at reasonable levels for consumers.
One of the changes in recent years has been the development of the livestock sector in Russia, to take pressure of meat imports. As a result, the livestock lobby has strengthened with grain supply and price a more sensitive issue than when Russia last intervened to limit exports six years ago.
At this stage it is business as usual, but the suggestion is that when total grain exports (mainly wheat and barley) hit 30 million tonnes, the situation will be reviewed again. That would leave wheat exports at 25 million tonnes, which is down on the US Department of Agriculture estimate of 2017-18 exports of 42 million tonnes.
The market reacted sharply as it assessed where any shortfall may come from.
In their August reports, the USDA pegged Russian wheat production at 68 million tonnes. This is still a big crop for them but is down sharply from an estimated 84.99 million tonnes last year.
Domestic consumption is forecast at 38 million this year against 45 million tonnes last year. That allows 35 million tonnes of exports.
The problems with those numbers are that it assumes Russian domestic consumption will pull back sharply, and it assumes Russian stocks will be allowed to fall to just 4.82 million tonnes.
If Russian domestic consumption does not fall as sharply as the USDA are projecting, then the balancing number will have to come from reduced exports. Similarly, if stocks are to be held at a higher level, it will also mean that exports will have to be cut back.
All in all, there is probably some merit in the suggestion that the Russian government will monitor the pace of exports closely, and act swiftly to protect domestic interests if they see the need. Meanwhile, exporters will probably position themselves to lift the pace of exports ahead of any restrictions.
