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Chart 2: Russia’s Feed and Residual as a Function of Total Supply


22 20 18 16 14 12 10


40 17/18 16/17 10/11 15/16 14/15 13/14 12/13 50 60 70 Million Tonnes Source: USDA and a combination of IEG Vantage forecasts for 2018/19


Now in mid-March, US futures have touched fresh May contract lows and Matif has traded to its lowest level in months. Similar to the strength that was a feature earlier in the crop year, the recent weakness in futures can be tied to Russia and the EU. Russia has continued to export at levels unexpected by many in the market this late in the crop year as no export limit was put in place despite additional rumors. EU exports are down, year over year, but the EU still has stocks to ship.


 Kansas City futures from the highs traded in mid-August to fresh contract lows in March? In general, the market may have relied too  residual forecast in the balance sheet, despite USDA’s trims to feed and residual.


Feed and residual is a tricky balance sheet item to forecast as it includes   balance sheets. For Russia, while in 2017/18 feed and residual was at its  a big drop in production would be correlated with a large drop in feed and residual use, based on Russia’s history.


Chart 3: Russia’s Wheat Situation Domestic Use


90 80 70 60 50 40 30 20 10 -


Production Exports Ending Stocks 80 90 100 11/12 18/19


HOW DID THE MARKET LOSE OVER $1.50 IN NEARBY KANSAS CITY FUTURES FROM THE HIGHS TRADED IN MID- AUGUST TO FRESH CONTRACT LOWS IN MARCH?


One key take away is that feed and residual is not a sticky element in a balance sheet for every country. USDA reduced the EU’s feed and residual forecast throughout the crop year as well. Perhaps many in the market anticipated that an export limit for Russia would be more closely tied with having to maintain a higher level of feed and residual domestically. Similarly, market expectations may also have been that EU feed and residual could not slump to such levels.


Currently, new-crop bids out of Russia are heavily discounted, which also are weighing on the nearby market. So far, weather generally has been favorable  is expected to be higher for the 2019/20 harvest   production between May and August in 2018.


Looking ahead to 2019/20, Russia could face another year of declining exports. While the market does look for acreage to be higher, both the EU and Russia have smaller beginning stocks for the start of 2019/20 compared with 2018/19.


Rejeana Gvillo E: rejeana.gvillo@informa.com


Source: USDA and a combination of IEG Vantage forecasts for 2018/19


25 | ADMISI - The Ghost In The Machine | March/April 2019


Million TOnnes


Million Tonnes


01/02 02/03 03/04 05/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17 17/18 18/19


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