Milling wheat supplies tight

As well, the pace of exports from the European Union is running well ahead of the same time last year (up 36 per cent year on year), and market watchers are also suggesting that the pace of exports from Ukraine is unsustainable.

There are three issues driving the market. One is China. They seem to be locking in a lot of purchases from France as well as Australia. The talk about imports of French wheat continues despite the poor quality of the French crop this year.

Another factor at play is inflation. With prices for a number of commodities rising, and with wheat leading the grains complex higher, some importers who are short of wheat seem to be purchasing regardless of the price they have to pay.

And then there is Russia. Not a lot happens in the wheat market these days without Russia being a dominant player. This year their crop is smaller, and to combat inflation, Russia's central bank has been raising interest rates. That in turn is making Russian wheat uncompetitive as their currency appreciates, pushing demand back to other exporters, and keeping upward pressure on prices.

Looking forward, the global fertiliser shortage is building and is likely to put pressure on yields for nitrogen hungry crops in 2022. In fact, crops like corn, and in some cases wheat, may see fewer planted acres as farmers switch to crops that are less fertiliser hungry.

In China, energy shortages are seen as potentially limiting fertiliser production just to what they will need for themselves, rather than being a dominant exporter.

Russia is also a country where fertiliser exports might be reduced as they hold back product for their own use.

Even in the US some companies are reported as limiting exports to make sure that local demand is filled.

The combined influences of supply, inflation and fertiliser shortages saw a number of wheat futures contracts move to new multi-year highs last Friday night. This included Kansas City hard red winter wheat (a seven-year high), Minneapolis spring wheat futures (a nine-year high, and over $10 per bushel), and in Paris, milling wheat also hit a nine-year high.

The contracts to not break new ground were those for lower quality wheats, which included Chicago Board of Trade futures, and the feed wheat contract in London. Both were up but did not make new highs.

Here in Australia though, domestic prices are coming under some pressure as shipping slots fill fast. Importers are turning to Australia for supplies, but once our shipping capacity is filled, demand for new crop wheat is coming under pressure.