Two issues will keep growth the US’s share of world trade limited over the next 12 months, and both center on Russia. The first is that following incredible yields in 2017, trend yield in Russia will be elevated, and in fact trend yield there is growing at a pace much faster than anywhere else. A simple 20-year linear trend in 2018/19 is pegged at 2.68 MT/HA. Trend yield in Russia has grown 27% since 2010, which compares to growth in US trend wheat yield of just 9%. Russian farmers keep getting better. The second is that, while logistics will indeed cap exports, carryover stocks are forecast at a near record large 17 MMTs. This will keep the domestic market in Russia depressed, and also provide a rather large buffer against weather issues next spring & summer. ARC notes that above normal precip and above normal temps have been recorded in the Black Sea so far this autumn.
ARC expects Russian wheat acreage to rise 1-2% on last year, as farmers there have maintained profitability despite a drop in price and as weather has been quite favorable in Southern and Central Russia this fall. Assuming slightly larger total wheat area and trend yield, Russian wheat supply in 18/19, assuming even semi-normal weather, will stay above 90 MMTs and thus sustain Russia as the world’s dominant exporter in Aug-Dec of 2018.
Domestic feed and food use is projected higher, albeit slightly, and exports of 34 MMTS will be hit pretty easily. Stocks/use at 15% in 2018/19 will be about average, but notice that it’s well above 2015/16. Russia does not aim to store grain, it’s just that in 2017 it will be forced to. The balance sheet tightens next assuming normal weather, but a major change in world cash prices is unlikely.
There’s a decent correlation between Russian interior prices and Russian wheat stocks measured as a percent of domestic use. Or, rather, price correlates with the need to sell excess supply. Assuming ARC’s preliminary 2018/19 Russian wheat balance sheets, replacement costs in Southern Russia – from where a majority of exports are sourced – will hit a low of $180/MT in Sep-Oct. Assuming normal cost and freight, Russian fob prices next will range from $195-205/MT, vs. $185-195/MT so far in 2017. However, with Gulf wheat basis in recent years ranging from 60-200 cents over futures, the US market does not expand its share of world share unless spot futures stay below $4.80.
A Russian crop of 65 MMTs or less – a yield 10% below trend – is needed to allow US exports to reach above 1,050 Mil Bu.