By Karen Braun

NAPERVILLE, Ill., Dec 6 (Reuters) - The global wheat market has perhaps never faced more uncertainty than in 2022, with Russia's invasion of fellow grain exporter Ukraine early in the year.

Chicago wheat futures are still elevated versus most years, though they are slipping significantly versus prices elsewhere and against competing grains, even as supplies remain tight.

Numbers could change in Friday's update from the U.S.

Department of Agriculture, but its estimates last month implied stocks-to-use among major wheat exporters hitting 15-year lows by mid-2023, meaning the fundamental narrative has not greatly shifted in recent months.

However, world wheat futures are falling.
Most-active CBOT wheat settled at $7.29 per bushel Tuesday after hitting a 14-month low. Paris-based Euronext wheat for March delivery on Tuesday slipped below 300 euros per tonne for the first time since early March. It had traded over 400 euros back in May.

That means more than just the Ukraine war premium has been removed from Chicago wheat, which averaged over $7.70 per bushel in January, the month before the invasion.

The market sensed escalating tension at the time, but wheat traders were unprepared for the Feb.

24 invasion, as evidenced by the unprecedented run-up in futures. By the first week in March, most-active CBOT wheat had surged more than 50% within 10 sessions.

To put that in context, the previous biggest 10-session run in percentage terms was around 35% in August 1973, and a near 32% spike was observed in August 2010.

The steepest 10-session losses were all near 22%, occurring in 1974, 2008 and July 2022.

Through Tuesday, CBOT wheat's 10-session decline totaled 11%, almost a record for the time of year.

Most-active CBOT wheat reached an official all-time high of $13.63-1/2 per bushel on March 8, narrowly topping the 2008 record, though the 2008 build-up was more gradual than in 2022.

LOW SUPPLIES, LOW PARTICIPATION

Heading into 2022, exportable global wheat stocks were already razor thin. USDA's February projection showed stocks-to-use among key suppliers at an all-time low by mid-2022, so the Ukraine invasion was a particular shock for the market.

Before February, Ukraine accounted for near 10% of the world's wheat exports, but that is estimated near 5% now.

Top exporter Russia's wheat shipments have been much better than a year ago, helping to keep a lid on prices, though Ukraine's volume last month was down 20% on the year.

Uncertainties with Ukraine did not attract participants to the market this year, as open interest in both CBOT wheat futures and options has hovered at more than decade lows.

The late February invasion had no meaningful impact on that trend.

CBOT wheat trading volumes were moderately impacted. Average monthly volume in March was 4% above the five-year normal, but it was below normal in every other month in 2022.

The biggest departure was 43% in April, then volumes stayed around 30% below average for the following four months before improving later in the year.

Mild volumes and interest mean that changes in speculative positioning have been very slow, though money managers have built their most bearish CBOT wheat view since May 2019.

Through November, funds' average 2022 weekly buying or selling in wheat was the lightest since 2008.

WEAK WHEAT

CBOT wheat is particularly weak against competitors. Front-month December contracts are in delivery, but on a second-month basis, European wheat's premium versus Chicago reached 45 euros per tonne this week, the largest since May 2012.

Second-month Kansas City wheat is just over a dollar per bushel more expensive than Chicago, which has been the case throughout the last month.

But before November, the K.C. premium had not consistently maintained those levels since 2014.

In 2014, the U.S. hard red winter (HRW) wheat crop, reflected by K.C. futures, took a sharp downturn coming out of the winter, resulting in very poor yields.
The current HRW crop is in terrible condition, but general global wheat supplies were building in a strong way in 2014, which is not the expected outcome this year.

CBOT wheat usually sits at a premium to CBOT corn, but it has lost significant ground to its yellow grain competitor.

Most-active wheat's premium to corn on Tuesday slipped below 92 cents per bushel, its lowest since July 2021. It had opened the month above $1.20.

But the new level is closer to "normal" compared with most of this year. Wheat's premium to corn averaged $3 per bushel from March through July, which had not been seen since 2008.

Historically, something around $1 or just above has been a more long-term sustainable level.

Wheat's losses against corn come as corn also hits multi-month lows. Most-active corn futures Tuesday dropped to the lowest levels since August, settling at $6.37-1/4 per bushel.
That is down nearly 9% since the start of November, the most for the period in 11 years. Karen Braun is a market analyst for Reuters. Views expressed above are her own.

(Writing by Karen Braun; Editing by Bradley Perrett)