Miller Magazine Issue: 118 October 2019

20 NEWS MILLER / OCTOBER 2019 Black Sea countries as well as Argentina, Australia and the EU to export the totality of their availabilities (after covering their domestic demand). On the other hand, US wheat is currently too expen- sive compared with its Black Sea or EU rivals on export destinations in Africa and the Middle East. Thus, little hope exists that the USA could export more wheat at current prices than last year. With Russian exports currently projected at 34.5 Mt and Ukrainian exports at 19.1 Mt, carryout stocks in the two countries on June 30, 2020, are set to be small. The stock outlook is the same for Kazakhstan, whist Austral- ia, Canada and Argentina are all expected to finish the marketing year with smaller inventories. Carryout stock in the EU could exceed last year’s level to a small extent, with its inventory comfortable but not in surplus. Thus, despite the continuing existence of significant stocks in the USA, inventories held by the main wheat ex- porters will decline in 2020 on account of the growth in global demand. On June 30, 2020, global reserves are projected to equal 105 days of consumption in compari- son to 115 days in June 2019, 122 in 2018 and almost 130 in 2017. When all the countries of the world are included, the global inventory will contract at a slightly slower pace, but even so, stocks equal to almost 10 days consumption will have been lost in the space of three years. WHEAT PRICES SET TO INCREASE THROUGH MARKETING YEAR This context therefore suggests that wheat prices have no potential for further decrease after the descent of the last few months; this is especially true given that today’s prices in Russian ports are very much lower than prices in the country’s interior. Even in Russia, prices are flirting with levels at which production margins for farmers will shrink significantly. In France, the current price of 168 €/t FOB Rouen corresponds to a farm-gate price of 150-155 €/t, which barely covers the variable costs of production (such as fertilizers, crop protection and seeds). Thus prices will need to increase during the coming months, with rising Black Sea wheat prices leading the pack and triggering upwards pressure elsewhere. Poten- tial price growth would be amplified if harvest outlooks deteriorate further in Argentina and Australia. Moreover, given that wheat is competing fiercely with maize, any increase in maize prices would boost the increase po- tential for wheat prices. This could happen if unfavoura- ble events impacted maize sowing and/or harvesting in South America, or if the USDA were to further reduce its corn production forecast for the USA. Measures intro- duced by Argentina to counter the country’s econom- ic crisis in the context of a more interventionist political framework will also need to be closely followed. If Argen- tina – now a key exporter on the world market – reduced its exports, then wheat prices in other parts of the world could climb. Lastly, if the tensions in the Middle East re- sult in a durable hike in oil prices, demand for ethanol could rise – in turn strengthening the increase potential for wheat prices. Nevertheless, it is important not to loose sight of the bearish factors that exist, namely the heavy global barley and maize markets in 2019/20 and the fact that the prices of these two grains – caught in a battle to cap- ture demand – will stay low (as- suming no bad weather impacts on the harvests). Maize and bar- ley will act as a moderating influ- ence, limiting but not preventing the rise in world wheat prices; meanwhile if current economic or financial troubles worsen in various importing countries, the impact on wheat price growth would also be bearish.