The wheat price on the Matif in Paris recently reached its lowest level in 7 months. Wheat prices on the CBoT in Chicago also fell hard at the beginning of week 8. How did that happen?
The wheat price on the Matif dropped considerably in week 7 and closed on Tuesday, February 19, at €194,25 per tonne. The CBoT also fell from $192 per tonne to $180 per tonne. The decline in the wheat price on the CBoT is a direct result of the disappointing export figure. The weekly export figure of American wheat was only 357.000 tons, while an expected range of 425.000 to 650.000 tons.
The export figures from the European Union (EU) are also disappointing. Until Sunday February 17, the EU exported 11 million tons of soft wheat and flour, compared to 13,7 million tons last year. Although the gap with last year is closing, the difference remains large. This while the expectations were aimed at reducing wheat exports from Russia and thus creating room for the EU and the United States (US).
Fall of Russian ruble
Exports from Russia are indeed declining, but European exports have not increased as much as expected. On top of that came the news that a new law has been passed in the US, allowing it to introduce additional sanctions against Russia. This caused a depreciation of the Russian ruble and made Russian wheat competitive again on the world market.
On the other hand, exports continue to suffer setbacks, increasing fears that Europe will have large stocks of the (expensive) old harvest left by the time the new harvest arrives. It is also expected that the new harvest will be large and that expectation is realistic. The conditions in the area around the Black Sea are for wheat generally optimal. A harvest of 76,5 million tons is therefore expected in Russia, which is 4,5 million tons more than last year.
The fact that the March contract is about to expire plays a role at the Matif in Paris. Many speculators cannot physically deliver the wheat, while this is required on the Matif. Therefore, the futures contracts are sold as soon as the maturity date approaches, which puts pressure on prices.
Cheap provider
Yet there are not only reasons for price pressure. On Wednesday, February 20, it turned out that Europe was the cheapest provider in a tender from the General Authority For Supply Commodities (GASC). The tender also shows that Russian wheat is quickly becoming more expensive. If we compare this tender with a tender from 2 weeks ago, it appears that Russian wheat now costs $15 per tonne more.
European suppliers also won a tender last week, which was issued by Algeria. Moreover, the physical wheat price in many European countries is clearly falling less rapidly compared to forward prices.
Regional fairs
The quotations on the regional stock exchanges also show that there is price pressure. The stock exchange committee in Groningen reports that the market is under pressure due to the large supply of 'import grains'. The Goes stock exchange is not even trading at all, due to a lack of transactions.