Inside Grains & Commodities
Wheat market is taking a break
On the first trading day of week 22, the US futures market will experience a small decline. The European market also reacts the next day. Traders are taking a break and reviewing the situation. This brings an end to a rally that lasted for 2 weeks on the Matif in Paris.
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Choose the subscription that suits youOn Wednesday afternoon, May 30, the September contract for wheat on the Matif is trading significantly lower. It notes a minus of €4,50. The contract closed on Tuesday, May 29, at €185,75 per tonne. That is the highest level since November 2015.
Cocktail
The rally, which started on May 14, will most likely come to an end. That rally was formed by a cocktail of ingredients. They are often related to the weather. The drought in the United States (US), combined with a worrying situation in the Black Sea region and Australia, is enough to give the bulls room.
However, there are more topics that play a role and determine the market price. The value of the euro is very important. It fell to its lowest point against the dollar last week. The value also decreased in week 22. A rising oil price also affects prices. At higher prices crude oil ethanol becomes a more favorable alternative for blending into fuels. This has a direct impact on the grain trade.
Startle effect
Further increases in the European wheat price are somewhat tempered by the grain trade. Too sharp an increase creates a deterrent effect among buyers. It is important to remain competitive, compared to Black Sea wheat. Prices are actually falling in that region.
Since European figures do not (yet) announce production cuts, it is difficult to get buyers interested in the current price level. However, higher premiums are paid for good quality baking wheat. It is becoming increasingly scarce. Quality with a lower protein content is widely available.
Silence before the storm?
However, if drought problems persist, the market may once again take an upward trajectory. Especially when there are also rumors in Europe about a disappointing grain harvest. Parts of Germany are bone dry for a long time, just like in Eastern Europe. France is now dealing with flooding and significant local hail damage. The summer season therefore starts anything but smoothly. The market is extremely sensitive to this at this stage of the season.
The Matif has been in a rally since the start of trading in the September contract.