What's Going On With Wheat This Morning?

05/09/14 -- I nearly had to do a double take when I powered up the old laptop earlier. US wheat futures in the green? Putting on more gains that corn, soybeans or anything else on the screen. What on earth is that all about, I wondered. Has it all kicked off in Ukraine again overnight?

It would seem not. "Ukraine's President Petro Poroshenko has raised hopes that a deal could be struck with Russia to end fighting in the east of his country," say the BBC this morning.

What else could it be then? The only explanation I can proffer is a report on Reuters, citing the Russian news agency Interfax, citing a letter, citing the Russian Ag Ministry sending it and the Russian PM "taking it" if you get my drift. The letter apparently said that Russia could consider restricting grain exports in 2014/15 should they exceed (a very precise sounding) 26.9 MMT.

The Reuters report says that the Ag Ministry declined to comment and that the government weren't picking up the phone. So I immediately think, yeah right. Why would they want to do that with more grain than they can shake a shitty AK47 at? There's 105 MMT of the stuff on the way according to ProZerno yesterday. The Ag Ministry say that they've already harvested nearly 79 MMT off only 61% of the planned area.

The headline to the story actually includes the words Russia, grain, export and (most evocatively) BAN. Could there be any truth in it at all? Let's face it, we don't believe anything that our own goverment(s) tell us, so why should we buy into this story?

Well, Russian domestic grain use is currently around 70 MMT annually, give or take. A 105 MMT crop, should they get it, is approximately a 100 MMT crop after cleaning. So that leaves 30 MMT left over for export.

Yet IKAR and ProZerno are both currently forecasting exports of 33 MMT this season, maybe this is what's getting the government jittery as it already says it intends to buy 4-5 MMT for state reserves this season. The latter is a plausible aim as their intervention purchase programme didn't go very well at all last season. Government stocks were reduced quite significantly in the drought year of 2012/13, so it seems logical that this current season's "time of plenty" is a good opportunity for these to be replenished.

Russia has after all suffered 2 bad drought years in the last 5, why export everything you've got at cheap money now, when you could bank a little for a rainy (or in this case droughty) day?

Of course, it could all be bollocks, but maybe there is something in the logic of this story after all?