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Wheat mkt looks beyond record stocks to US, Russian crop woes: Analyst

October 22, 2020 00:00:00

NAPERVILLE, Ill, Oct 21 (Reuters): Chicago-traded wheat futures have rallied to near six-year highs on strong global demand and unfavorable planting conditions in some major exporters, despite the expectation for record-large stockpiles by mid-2021.

Most-active CBOT wheat Wv1 hit $6.38-1/4 per bushel on Tuesday, the contract's highest since Dec. 24, 2014. That is consistent with rising international prices, particularly in top supplier Russia, where wheat prices hit record levels last week amid the weak currency and high export costs.

Dry soils are threatening next year's wheat harvests in Russia and the United States, which together account for a little more than a third of global exports. The short-term forecast remains dry for the top Russian wheat region, and key US states could be facing extended dryness under La Nina conditions.

But despite these very legitimate harvest worries, the global wheat market in recent years has done a remarkable job of balancing supply and demand levels, even when some countries occasionally come up well short of production targets.

Wheat currently being sown in the Northern Hemisphere will be harvested in the 2021-22 cycle that does not start until later next year. But a supply cushion has been built up in the current year, as US government outlooks show world ending stocks rising to an all-time high in 2020-21.

That is expected to be true with or without China, which historically participates to a minimal extent in wheat trade. But China's wheat horde continues to expand following a record harvest earlier this year.

China is set to have 51 per cent of the world's wheat in storage by mid-2021, and its domestic stocks-to-use is seen rising to a new high of 125 per cent, meaning it will have about 15 months' worth of wheat needs in storage.

When excluding China, US Agriculture Department projections show world wheat stocks-to-use at 19.5 per cent in 2020-21. That ratio, a measure of supply versus demand, has been steady over the last decade despite larger swings in production. It has not fallen below 18.2 per cent and has not risen above 20 per cent in the last 10 years.

Official outlooks for 2021-22 have yet to be released.

Russia has largely outgrown its reputation for being a "swing" production region, meaning that ample output has become increasingly reliable in recent years. But the global wheat market still takes seriously any threats to the heavily exported crop.

At the end of September, soils in the Southern District were the driest for the time of year since 2015 and 28 per cent lighter than in the previous four years. The region is Russia's top winter wheat producer, accounting for more than 40 per cent.

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