The D-word sounds again on wheat market

Wednesday April 1 and Thursday April 2 in particular were a busy day on the futures markets in Paris and Chicago. Wheat dropped significantly to a price level not seen since March 19. It's as if the market got a splash of water in the face and cooled down for a moment. It hoarding behavior is coming to an end, leaving the market looking for new insights. In the meantime, many growers have been able to take advantage of the rally to cover themselves well.

Bottom
On Friday, a bottom was set above €190 per tonne and on Monday afternoon the prices increased again. The Matif even quotes €194 for the most current contract (May). The new harvest is now trading at a good €187 per tonne. Also the CBoT plus. On Friday it again exceeded $200 per tonne and on Monday there will be another profit to be made.

First of all, there are new acreage figures in the US that the market is taking into account. The USDA estimates that more corn and soy will be grown. Despite the fact that the ethanol market has completely collapsed, the Americans are counting on being able to sell large volumes to China. A hot market, where there is a fight with mainly the Brazilians. This scenario now appears to be coming true, as export figures indeed show renewed interest from China for large volumes of grain.

Increasing drought
Another factor that is now coming into play is the drought in the Black Sea region. Stories about this have been going around for much longer, after a frostless winter with hardly any snowfall. A good snow cover is precisely required to replenish moisture reserves. The south and west of Russia start off dry, just like parts of Ukraine.

There is also talk of drought again in Europe, now that in some parts no significant rain has fallen for almost a month. Poorly rooted and late-sown grain crops suffer even more from this and late-sown summer grains could also use a good spring shower. It is good to realize that a rain front can cause this 'bullish' mood to quickly turn into a 'bearish' market, when moisture is no longer a limiting factor.

Russian handbrake
The Russian government has set an export quota of 7 million tons until the end of this marketing season. This is not an obstacle, because this value is above what is considered capable. However, it does send a signal to the market. Moreover, the Russian government can tighten the thumbscrews further if it remains dry and a shortage is expected. A heavily devalued ruble now provides good export opportunities, hampering the domestic market and fueling exports. This is now noticeable in the prices of bread, for example.

The wheat acreage in the US will set a new record low this year. Since reporting began in 1919, the area of ​​wheat has never been so small. Record low closing stocks are therefore expected for 2020/21. US traders also expect wheat use to increase as people consume more wheat products at home than they normally do.

         Bulls on the grain market:

• Drought is playing a role in the Black Sea region, Europe and parts of the US.
• Russia exports at top speed. If this market pulls the handbrake, the consequences for price formation will be major.
• Smallest wheat acreage in US since 1919.
  
  Bears on the grain market:
• One heavy rain shower in the Black Sea region can make profits evaporate.
• Wheat levels in American states are good.
• US export figures are disappointing.