Chicago wheat hits 5-month high as Russian cash rally persists

Wheat prices closed 3% up in Chicago Friday, capping a stellar week for the grain as crop downgrades in Argentina and slow farmer selling on the Black Sea dovetailed with increased interest institutional investor interest in agricultural commodities.

Prices rallied 6% over the past week to their highest level since April, with the Chicago December contract closing at $5.75/bu.

“The rally is all about the Russian farmer hanging onto his cash this year, and consumers being less covered than normal,” broker ED&F Man wrote in a client note Friday.

Russian farmers have maintained a slow sales pace that is squeezing exporters’ margins and lifting offer prices on the export market in the Black Sea.

Agricensus’ spot assessment of Russian 12.5% is up almost 20% since the start of the local marketing year on July 1, hitting a five-month high of $234.50/mt FOB Novorossiysk on Friday.

The assessment is just 75 cents shy of a high last seen in January 2019.

Argentina’s wheat crop rating was downgraded in a report by the Buenos Aires Grain Exchange Thursday night, with just 14% of the crop now said to be in either an excellent or good condition as drought in the north and frosts in the south have hit.

While the global wheat supply picture remains healthy overall – the planet is currently on track to produce its biggest ever crop this year if there are no further downgrades – trade flows have been rerouted by smaller production in some major exporters.

With a big headline output figure, some importers opted to defer buying forward positions and run tight inventories at the start of the 2020/21 marketing year.

That attitude appears to be shifting, however, and demand has been buoyant through September, with Agricensus data showing over 2.1 million mt of wheat bought via tender since the start of the month.

Flows

The rally also comes as investors have started to make increasingly bullish bets on agricultural commodities.

With asset prices rallying around the world and the dollar’s value weakening on the back of loose monetary policy, money flows have started to turn to the sector in search of returns.

Weekly Commitment of Traders data from the Commodity Futures Trading Commission, a US regulator, published Friday showed last week that speculators had taken their biggest net long position in soybean futures since March 2018.

Wheat buying in the week to September 15 was not as stellar as for soybeans or corn, although speculators remained net long both the major US wheat contracts.

Broker estimates suggest investment funds could have bought as many 15,000 lots of wheat on Friday, helping spur the price rise.

The Chicago December contract was down 0.8% in the overnight session at $5.70/bu by 1000 London time.