The ever-dominant Russia is leaving a gap in the wheat export market. The EU benefits from this. Russian farmers are in a privileged position to be reluctant to supply, which means that less is exported.
A number of reasons ensure less Russian wheat on the world market. Other wheat suppliers can benefit from this. In addition to the United States and Ukraine, there is also the European Union, with France leading the list. The EU has the added advantage of a favorable exchange rate for the euro at the moment.
High Russian price level
This brings a positive momentum. The Matif rose to €181,25 per tonne for the December contract last Friday (October 18). Earlier that week, the closing price fell below €180. On Monday afternoon, October 21, the rate reached €182 per tonne. In Russia, physical baking wheat prices are at an even higher level at $205 per tonne. This is the highest price level in 5 months.
Arable farmers in Russia can afford to wait before selling. They focus on selling other products. This keeps the cash flow going, which is necessary to finance a new growing season. Because good profits were made from wheat last year, companies are in better financial shape. They have more staying power, which makes the supply small.
Negative profit margin
The stock of old harvest is also small. Even twice as small as a year earlier. Exporters have little inventory to draw from. They are forced to go to the market to buy expensive wheat from farmers, which means margins are thin or even negative. This does result in prices slowly falling, although insiders also expect a stable high price level for the second half of the sales season.
The renowned market agency SovEcon expects the closing stock for the 2019-2020 marketing year to be 6,8 million tons. This is the lowest stock in 10 years. They estimate the export level for this season to be 10% lower than a year earlier. Ukraine, Europe and the US are filling this gap. The US Department of Agriculture (USDA) is more positive about Russia's exports, but SovEcon does not believe these figures are realistic. They forecast 1,18 million tons of wheat exports compared to 1,25 million tons in the American figures.
High-level sales prices
The Middle East and North Africa remain the main destinations for Europe, where it competes with Russian wheat. This European wheat mainly comes from France. Distant destinations are more likely to be supplied by the US. The Egyptian state agency GASC, which buys wheat through tenders, also remains firmly on the market at these prices. In the last tender, the price level was $6 to $9 higher than a week earlier. Saudi Arabia has also purchased a lot of wheat through a tender.
Market agency Strategy Grains from France has revised upwards both their production and export figures for European wheat. Sounds from North America are less positive. In the US, 94% of spring wheat has now been harvested. The remaining 6% is probably no longer worth harvesting after all the snowfall. 65% of the winter wheat has been sown in the country. That's average.
In Canada, the situation is more extreme and varies from province to province. In Saskatchewan, the wheat harvest is only half-advanced, while in Manitoba 95% is in the silo. In Alberta the harvest level is even below 50%.
Global situation
Grain traders are also looking at the situation in Australia and South America. In the former country it remains dry, which negatively affects two-thirds of the wheat area. The yield was previously reduced by 1 million tons. Rain does fall in Argentina, which improves the condition of wheat. It has also been persistently dry here.