Wheat futures have gained back much of the ground they lost since the start of the year in the last couple of weeks.
There is a tendency for ridge-building in parts of Russia in years when there is a transition from El Nino to La Nina.
There was a foreshadowing of that this spring when a ridge emerged, resulting in portions of Ukraine, southern Russia and western Kazakhstan receiving less than half their normal rainfall amounts in March and April.
That has analysts like SovEcon already contemplating reduced yields for the country’s winter wheat crop.
Drew Lerner, president of World Weather Inc., said the ridge has gone away, but he expects it to return by the end of May and to dominate summer weather patterns.
“The infamous drought in Russia of 2010 was a byproduct of this same environment,” he said.
“That was a really nasty year.”
The bad years tend to happen when it is a strong ridge that sets up further west in the country’s wheat growing region.
However, there have been other El Nino-to-La Nina transition years, such as 1988 and 2016, where the ridge was smaller and set up further east. The yield impact was not nearly as pronounced in those years.
Lerner said helpful moisture could arrive before the ridge re-establishes itself, but then it will turn hot and dry, and that is likely to result in some type of yield reduction for both the winter and spring cereal crops.
Arlan Suderman, chief commodities economist with StoneX, said wheat markets are finally starting to come to grips with some of the threats to this year’s wheat crop.
The Black Sea region has dryness and geopolitical concerns, the European Union’s crop is being slashed due to excessive moisture and ratings for the U.S. winter wheat crop are tumbling.
The combination of those factors finally prompted the stubborn shorts to start selling. The problem is there weren’t many buyers.
Farmers are usually the players with big, long positions who are willing to go short. However, growers in the Northern Hemisphere were largely sold out of wheat. They were between crops when the shorts decided to sell.
That resulted in rising futures prices as speculators in the Kansas, Chicago and Minneapolis wheat markets moved from a near-record net short position to a far more reduced level.
“They unwound a great deal of it,” said Suderman.
What worries the market the most is if Russia’s crop is cut short after three consecutive years of bumper harvests.
Russia’s seemingly endless export program has covered up a lot of blemishes in the wheat market.
Suderman just finished his world wheat balance sheet, and he is forecasting that supplies for major exporters will tighten up by 16 million tonnes in 2024-25. The world will primarily be short milling wheat.
That is why all eyes will be on what happens in Russia.
If the ridge Lerner is forecasting turns out to be reminiscent of 2010, there could be fireworks. The price of Chicago wheat doubled in a period of about five weeks back then.
Suderman agrees with Lerner that Russia will likely harvest a smaller crop. The big questions are how much smaller and how much old crop do growers still have in their bins?
“I don’t think it’s a given by any means that we’re going to see a major bull market in wheat,” he said.
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