Agricultural markets jump on short covering, Russia mulling export curbs
Global agricultural futures market arrested steep falls on Friday to post strong gains as comments from Russian authorities over curtailing wheat, sunflower oil and sunflower seed exports mingled with short covering to claw back some of the ground lost.
Russian authorities said they were considering limiting exports of products after heavy price falls on international markets, while talk also surfaced on extending the fertilizers export ban till November, despite Russian demands last week to boost export rates in return for granting an extension to the Black Sea grain corridor.
Those fears stoked a wheat market primed to respond after Chicago wheat futures had dumped 7% of their value between Friday and Thursday, and augmented underlying fears over the health of the US wheat crop.
As of 1000 Eastern Time, the May CME Kansas wheat contract was trading at $8.54/bu, up 4.25% on the previous day’s close, while May SRW wheat was trading at $6.95/bu, up over 5%.
In Europe, the May milling wheat contract on the Euronext exchange was up €12.25/mt from yesterday’s settlement level at €257.25/mt at 1551 CET, while the equivalent rapeseed contract was up a whopping €16/mt and recorded at €452.25/mt.
But wheat wasn't the only grade to postgains, with soybean futures, which had been looking particularly bearish in the face of a bumper crop in Brazil and lukewarm Chinese demand, climbed to $14.24/bu, up nearly 6 cents on overnight settles.
Fire
"Indeed, the news story in Russia seems to have triggered a bit of short covering by specs in US and EU wheat derivatives markets today," said Jeff McPike of Waseda Commodities.
Charlie Sernatinger of Marex Capital put a greater emphasis on the short-covering aspect.
“At its core, there were just too many speculative shorts in the wheat,” Sernatinger said, likening it to “a room full of fat guys with one skinny exit door after someone yelled: ‘Fire!’”
More prosaic reasoning came as the end of the week brought out traders looking to take profits from the falls over the course of the week and buy back positions sold earlier.
“Technical buying and spreading against soybeans started the rally, then the Russian headlines provided another leg higher for EU and US wheat futures,” senior grain and oilseed commodity analyst at Futures International Terry Reilly told Agricensus.
“Not much else going on otherwise. Looks like bottom picking and widespread agriculture commodity buying,” Reilly said.
Earlier Friday, Russian business daily Vedomosti reported that Russia’s agriculture ministry would meet with industry representatives this week to discuss a possible temporary halt to exports.
Deputy Minister of Agriculture Oksana Lut said Thursday that over the past week and a half, the cost of sunflower oil had fallen by an average of 20% to $800/mt with sunflower seeds falling by at least 34% to $395/mt.
Russia is a major exporter of wheat, with 2022/23 production estimated at over 100 million mt and an export surplus estimated at 46 million mt, of which 32.3 million mt has already sailed from Russian ports.
In terms of sunflower oil, Russia's export potential is estimated at 4.3 million mt in the current season.
Russia might also extend the fertilizers export ban for extra six months till November to support the local market, Agriculture Minister Dmitry Patrushev said Friday.
Market watchers also pointed to ongoing concerns over poor US winter wheat crop conditions.
Whether the current rally develops into a reversal of sentiment is yet to be seen, observers said, as wheat has been in a downward trend for some months now.
"Whether that temporary rally becomes a defined reversal will depend on whether the news is accurate and whether importers and users return to the market as buyers," McPike said.