Russian wheat output to decline ‘notably’; Brazilian soybeans volatile

The port of Azov in Russia is located on the South bank of the River Don.

It is a key trading point and handles 5-6 million tons of cargo traffic between Central Asia, the Urals, and the Mediterranean Sea.

However, for the past week, torrential rain and heavy storms have halted vessels from carrying essential grains through the route.

S&P Global Commodity Insights reported that the Kerch Strait which connects the Black Sea and the Azov Sea will remain closed until November 30th due to the onset of poor conditions.

The difficult weather and associated delays have prevented the transportation of wheat and led to spoilage in certain warehouses.

Due to these disruptions, Sovecon, an agricultural consultancy specializing in the Black Sea region estimated that Russia exported 0.56 million tons of wheat last week, compared to 0.75 million tons in the week before.

For the entire month of November, market estimates suggest that total exports will be approximately half a million metric tons below initial projections.

As a result, the January delivery contract for 12.5% protein Russian wheat prices rose $5 per metric ton since the previous week to $235 per metric ton, as per IKAR, the agricultural consulting group.

The disruption is expected to last a total of 10-15 days and would be especially challenging for transport companies working with low inventories and restricted margins.

Despite the destruction to some ships and stores, any further significant price increases may already be baked in given that SovEcon noted,

Russian wheat outlook for 2024

SovEcon research expects that Russian wheat production may 'decrease notably' to 89.8 million metric tons in the 2024 season.

This would mark a 1.9% fall from harvests of 91.5 million metric tons in 2023.

In contrast, the 2022 crop was estimated at 96.5 million tons, a record year for Russian wheat cultivators.

In 2024, average yields are expected to decline to 3.04 metric tons per hectare compared to 3.07 metric tons per hectare in the ongoing season.

This decline is expected to come as a result of a fall in farmers’ inputs following thinner margins and weaker growing conditions in the new season.

In contrast, the 2023 season yielded higher-quality conditions and is on track to be the second-highest-producing year for Russian wheat cultivators.

The upside

On an optimistic note, Reuters reported that Agritel, an agriculture analytics company, found that in 2024, along with existing stocks, wheat supplies would likely top 100 million tons for the third year in a row.

Further, the expected output would continue to remain historically strong, at a level above the 5-year average of 86.4 million metric tons. 

As a result, Russia is poised to remain the largest wheat exporter in the world.

In the case of heavier-than-anticipated declines due to a collapse in yields or harsh weather conditions, elevated stocks should cushion market tightness.

However, global wheat purchases may be impacted if the Russian government were to roll out strong export controls.

Soybean futures

Futures contracts nearly reached a three-month high in mid-November.

However, soybean prices remain volatile after touching a three-week low on the Chicago exchange earlier this week, falling to $13.26 a bushel in Monday trading.

Following this, prices saw some support due to positive data from US exporters.

In addition, ongoing drought conditions in Brazil, the world’s largest producer, may adversely impact yields, pushing prices higher on stressed supply.

For the season, initial production estimates stood at 165 million metric tons, however, a consultant at MB Agro has revised projections lower by 10 million tons.

Having said that, total estimated production is well above the 5-year average and is likely to cap any upside volatility in the coming weeks and guard against far-reaching effects.

Yet, market watchers will continue to closely monitor the situation for any signs of price spikes, further deterioration in supplies, and changes in weather conditions.