Black Sea shorts, bullish tenders driving wheat run: trade

Recent short covering on the Black Sea and a slew of bullish tenders are driving cash wheat prices and, in turn, futures prices higher, traders told Agricensus on Monday, with some casting doubt on the impact of cuts to Argentinian and Australian production.

Chicago December wheat closed at a three-and-a-half month high on Friday, and – while correcting down around 1% at Monday’s open in the US – was still trading 16% higher from a September 3 low by 1100 Chicago time.

With global production estimated at 766 million mt by the USDA, and traded volume of 180 million mt, traders that spoke to Agricensus were sceptical recent output cuts in Australia and Argentina are having a major impact on market fundamentals, despite being commonly cited as driving the rally.

Instead, Black Sea exporters holding off covering short positions until the last minute, as well as persistently slow farmer selling in the Black Sea cash market has left inland buyers bidding up the domestic trade.

Decreased output in Kazakhstan – typically a wheat exporter and a major regional flour producer – was also said to be contributing to upwards inland price pressure on the Black Sea, quietly taking out as much as 1.5 million mt of Russia’s supply away from local millers and exporters.

Agricensus’ Russian 12.5% assessment has rallied 13% since a September 13 low of $184/mt FOB to hit $208.50/mt FOB Novorossiysk on Friday, as a result.

Russian 12.5% was offered at $210/mt FOB Novorossiysk for November loading on Monday, with the best bids heard at $206-7/mt.

With eyes on Russia, the world’s biggest wheat exporter, prices paid in state-backed tenders have spiked.

Egyptian importer GASC paid $9/mt more than it did a week before on October 16 for November delivery wheat, while Saudi Arabia’s SAGO paid $25/mt more than the month before for February-March shipment.

Despite the recent rally, traders that spoke to Agricensus are seeing a ceiling approaching in the short term.

“I would be surprised if we see Russian 12.5% going much higher above $215/mt FOB Novo on spot,” a trader told Agricensus.

Further out, however, there remains some scope for bullishness as destination buyers return to the market and look to cover positions from January onwards.

“Destination markets seem well covered until the end of the year, but we are going to see more demand come for positions from January,” a second trader told Agricensus.