The global grain market has to deal with 1 problem: the sky-high stocks. The grain price cannot move and therefore hardly moves. Is an improvement in price plausible or false hope?
Despite wheat prices rising and falling virtually nothing, the closing price for wheat on Monday, December 4, provided a glimmer of hope. The December contract closed at €161,75 per tonne. The range within which the wheat was traded moved between €157 and €161,75, with a turnover of more than 187.000 contracts. That is good for a volume of 9,363 million tons. Compared to 2 weeks ago, this is a decrease of 1,74 million tons (34.822 contracts).
Less American trade
A similar picture was visible on the CBoT. However, the past 2 weeks have had 1 fewer trading day. This is due to Thanksgiving (November 23). In total, more than 300.000 contracts were traded, resulting in a volume of 40,937 million tons. That was 14 million tons in the 122 days before, good for almost 900.000 contracts. The price spread was between $409,25 and $424,75 per 5.000 bushels (136 tons).
As the 2017 harvest is completed, more forecasts for the 2017/2018 season are being released. The International Grains Council (IGC)'s first forecast is 748,9 million tons of wheat. That is 400.000 tons more than expected in October last year. The IGC puts wheat production for 2016/2017 at 754 million tons. This high figure is mainly due to high production in Russia, the EU-28, China and India.
Big pluses and minuses
As is known, the Russian arable sector has performed well. Wheat production there is expected to increase by 10,5 million tons, an increase of 14,5% and good for an estimated total yield of 83 million tons. In the EU-28 a plus of 4,8% is recorded. The volume of wheat amounts to 151,3 million tons.
The United States (US) shows a significant minus (of almost 25%). The wheat harvest there amounts to 47,4 million tons. The US ranks fifth in the world as a wheat producer. Australia expects a yield that is even 40% lower, at 20,5 million tons.
Unfavorable euro exchange rate
High world inventories, combined with a strong euro against the Russian ruble and Ukrainian hryvnia, are causing spot prices to fall on European markets. The forward quotation for wheat, delivery in March 2018, increased by €0,50 to €162,50 per tonne. The May 2018 contract fell to €165,75 per tonne. Corn remained stable for January delivery at €154,25. The March quotation had to give up something.
Between November 22 and 28, the European Union (EU) exported almost 670.000 tons of grain. Of this, 421.567 tons is wheat and the rest is barley. In the same period, 434.000 tons were imported. This largely concerns grain maize, accounting for 343.961 tonnes.
Based on this data, the EU is a net exporter of 4,6 million tonnes. In the same period last year this was almost 10 million tons. The world grain balance predicts a decrease in grain stocks of 27,5 million tons to 495,6 million tons on June 30, 2018. Sufficient for 12,2 weeks of grain consumption worldwide. With the exception of wheat, all stocks are declining.
Higher yield in 2018
The adjusted grain balance predicts an increase in the corn harvest by 2 million tons, to 62,8 million tons, for the 2016/2017 season. This is due to an adjustment in the Romanian corn harvest.
The forecast for 2017/2018 was positively adjusted by 5,3 million tons, to 304,3 million tons in total. This concerns 142,5 million tons of wheat, 58,7 million tons of barley and 62,6 million tons of corn. All grains are plusses with that. The consumption of corn for animal feed is expected to increase by 2,5 million tons, to 57,8 million tons. As a result, the theoretical final stock increases by 2,2 million tons.