Wheat prices are on the rise

The International Grains Council (IGC), in their monthly report on April 26, reduced global wheat production. This is estimated at 2018 million tonnes for the 2019/739 season, a reduction of 2 million tonnes compared to the March forecast. The difference with the 2017/2018 season is a significant 19 million tons.

Not twice the price
The sector is increasingly starting to realize that the hefty volumes of last season will not be achieved for the second time in a row. The growing conditions in the different parts of the world are too erratic for that. Huge closing inventories are currently dampening significant price increases.

According to the IGC, total grain production amounts to 2,088 billion tons, compared to 2,093 billion tons last season. More corn and higher ending stocks compensate for lower wheat prices. The IGC puts the closing stock at 257 million tons, compared to 263 million tons in the current season.

Price increases
The Matif in Paris closed at the end of April at a rate of €168,25 for wheat. Tuesday May 1 was not a trading day, but on Wednesday May 2 the contract is once again trading in the plus (€170 per tonne). The CBoT was open on May 1. There, the May contract added $6,34 to close at $194,65 per tonne, a level last seen on July 11, 2017. The last trading day for the contract is May 14. Contracts for the new harvest are also on the rise.

The wheat price is also experiencing support closer to home. Over there wrote we talked about earlier. The reason for this is partly one faltering logistics from France. The Rotterdam stock exchange quotes €180 per tonne for EU feed wheat, an increase of €4 compared to the previous week. This was already the case in mid-April, but for the first time we have to go back to mid-July 2017. The price then entered a free fall, reaching a low of €164 per tonne.

(Text continues below the chart)The closing price on the Matif in Paris shows a significant increase.

More exports
It is clear that the price formation of wheat is having a tailwind. The worldwide lower production figures are the main cause of this. The export position of the European Union (EU) has improved, partly because the euro has declined in value (relative to the dollar). Both the European Union and the United States saw their export volume increase, although that of the EU is still 22% behind last season.

The IGC also writes about drought in the Black Sea region, because this is positive for sowing spring grains. However, frost is throwing a spanner in the works in some parts of Russia; the latest forecast is for a harvest of 93,2 million tons. It is a reduction of 5,5 million tons compared to the current season. For Ukraine the reduction (-500.000 tons) is smaller. For the EU-28, the total wheat harvest is estimated to be 1,5 million tons higher.

Drought in Australia
The IGC remains moderately positive about the Australian wheat harvest (the fourth largest exporter in the world). The forecast is 30,5 million tons, compared to 29,4 million tons in the current season. The Australian agricultural statistics agency ABARES publishes lower figures and arrives at 2017 million tonnes for the 2018/21,2 season; a huge contrast to the record year before, when 35,13 million tons of wheat were harvested. It estimates that the coming harvest will amount to 23,7 million tons.

Arable farmers in Australia are currently sowing wheat; the sowing season runs until the end of May. However, this requires rain. The country has experienced its driest and warmest winter in decades. However, sowing in bone-dry soil is a gamble. In Western Australia, where 1% of all wheat is grown, only 40% of normal rainfall fell. Drier and warmer weather than normal is also expected in the coming months.

Grain farmers and exporters in Australia have even more to fear, it writes Reuters. The country is Asia's second largest supplier, a position that Black Sea exporters are keen to challenge. The quality of Australian wheat is known for its ability to be made into noodles in China, Japan and Indonesia, among other things. However, wheat quality from Russia and Ukraine is increasing every year, putting Australians in a tough spot. In addition, wheat from the Black Sea region is cheaper.