Strong demand from the feed industry
German feed wheat more expensive than baking wheat
The demand for wheat from the German animal feed industry is so strong that baking wheat is now widely used for the production of compound feed. It creates an upside-down world, in which feed wheat is considerably more expensive than baking wheat.
The German export of (baking) wheat fell sharply last season; as a consequence of the Russian grain abundance on the world market, which can also produce cheaper. The disappointing wheat harvest in Germany (due to heavy rainfall last summer) also contributes to this. At the same time, this means less imports from Eastern Europe (Poland and the Czech Republic). On balance, however, wheat is widely available in Europe. Partly because the worldwide closing stocks be huge.
Feed industry swallows large volumes
The animal feed industry in Germany is the largest in Europe. The major customers are the German pig farmers, with a joint pig herd of just under 30 million pigs. Now that wheat prices are under pressure (due to ample stocks), this protein component is dominant in pig feed. Alternatives, such as soy and grain maize, currently charge less favorably.
Wheat may be widely available on paper, but in practice this is not always the case. European arable farmers are hesitant to sell and are waiting for a possible price recovery later in the season. This is possible when (frost) damage occurs in European winter wheat.
Gap of €10 per tonne
Feed wheat (delivery in February or March) now yields around €168 per tonne at the EEX in Leipzig (Germany), compared to a quotation of €159 per tonne for milling wheat. Grain traders in Germany report that German arable farmers now frequently sell baking wheat as feed wheat. This is because it simply yields more. Especially because the quality of wheat sometimes leaves something to be desired, so that they run the risk of being cut in the payout. It makes the somewhat dormant wheat market in Germany more lively.
Incidentally, the price difference between feed and baking wheat is not something that happened yesterday. For example, the quotation of EU feed wheat (Rotterdam) has been almost structurally above the wheat quotation on the Matif in Paris for some time (September 2016). In the past this only happened occasionally.
Since September 2016, feed wheat has been structurally above baking wheat.
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Wouter Job
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