Chicago soft and hard red winter wheat futures closed Fridays session with a nice rally. Taking the weekly gain for SRWW to AUD$1.53 and HRWW to AUD$7.64 / tonne. Not very impressive but a nice result considering the weakness in wheat early in the week.
The main driver behind the rally appears to be fund money short covering, which has continued since the last week in April. The latest CFTC report showing funds now hold their smallest net short position in Chicago wheat since July last year. Short covering is not uncommon for the spring period in the northern hemisphere. Volatility can lead to rapid exposure due to quickly changing fundamentals. The closer to square their position the less likely losses are to hurt.

The fastest changing fundamental for wheat at present is probably the poor conditions across Southern Russia. With low rainfall and higher than average temperatures, the lower Volga Valley is not expected to achieve it’s potential in 2024. The region currently experiencing the driest conditions may see some reprieve from warmer temperatures over the next week but the forecast for rain remains poor.
The southern region affected by the dry produces roughly 40% to 50% of the Russian winter wheat crop. Winter wheat accounts for about 70%-75% of total Russian wheat output. So in theory at least, the math tells us that there is roughly 25mt to 30mt produced in the region worst affected. A 20% reduction in yield there could result in a fall in Russian wheat production of 5mt to 6mt. A considerable amount yes, and a very nice place to see a fall in production considering Russia is the worlds No1 wheat exporter.
If you use this in a current global S&D sheet we come up with a final stocks to use ratio of about 29%, the first sub 30% S:U ratio in 10 years, that was about a year after Russia had their last major production issue. If we see further deterioration of the Kansas crop, lower estimates out of India, EU, Morocco and Russia. Issues across Western Australia, some of which were helped with some rain this week, then we may continue to see the S:U ratio decline.