Week 35: is 150 euros soil for wheat?

The global grain market is also under pressure in week 35. In Paris, the September contract for milling wheat fell to €152 per tonne on Tuesday, August 29. The reports about yield expectations in the various grain-growing nations do not make it easy for the stock to find solid ground under its feet.

Russia as the largest exporter
Expectations about the harvest in Russia and India show significantly higher volumes than average. The world is therefore heading for a record high wheat harvest. Russia could become the largest wheat exporter in the world, with a sales volume of 31,5 million tons. Opportunities can partly be found in China. However, this country protects its own market with high import duties. This amounts to 180%, but for friendly countries 'only' 65%.

Europe also needs good exports, given the yields expected in the European Union. However, to date the level of exports has been disappointing. A strong euro against the dollar and the upward adjustment of the harvest estimate ensure that sales are moderate. Countries in the Black Sea region are standing in the EU's way when it comes to wheat exports.

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The exchange rate is of great importance for grain exports in Europe.

Good harvest EU
In the latest harvest forecast, the European Commission adjusted the volume of grain upwards, to 298 million net tons. An increase of 2,5 million tons compared to the previous forecast. The grain harvest has been increased by 800.000 tons. That of grain maize with 1 million tons. This means that the theoretical grain stock in the EU will reach a level of 30 million tons on June 2018, 38,1.

Good exports are required to reduce this number. France in particular is experiencing substantially higher yields. This country alone accounts for an additional 8 million tons in the European grain balance.

Wheat stocks higher
The International Grains Council (IGC) has also upgraded their forecast for wheat. Especially because a high yield is expected from the Black Sea region. After last season, closing stocks were already relatively high. This level will increase further during the 2017-2018 season. The IGC calculates that this will increase by 7 million tons of wheat, to 248 million tons in total. An increase of 4 million tons compared to last season's closing stock.

Text continues below the chart.The IGC is adjusting their expectations for the final stock of grains upwards.

Where is the bottom?
The current question is whether a price level of €150 for milling wheat on the futures market could be a floor for the contract. Recent years have shown that this level always ensures stabilization in prices. New sales markets then arise, or because the wheat is used for alternative sales forms. For example, the feed wheat market.

However, the EU is well short of feed wheat this year, which means that this market will experience additional disruption from the supply of milling wheat, should the situation turn out like this. At the CBoT in Chicago, the limit of 400 dollar cents per bushel is an important limit. This is also currently being tested.
The September milling wheat contract on the Matif is currently testing the €150 floor. More graphs? Visit the Database.