With about 6 weeks to go until the first combines go to work, market analysts and farmers are busy estimating the coming grain harvest and what price level will go with it. There is a real weather market at this stage of the season. A little more or less rain makes all the difference. The same goes for the crops.
On Monday afternoon, May 25, the wheat price of the new crop (September contract) on the Matif is under slight pressure. It moves back below €190, around €188 per tonne. That was also closed last week. In the US, the markets are closed for Memorial Day. An important moment for the grain market, which is now clearly going to choose direction.
Rising prices new crop
The state of grain crops in Russia and Ukraine is crucial. It is precisely the size of the wheat harvest here that is much debated. There is one camp that thinks the rain came on time and one that thinks it was too late. The fact is that Russian farmers have sown more wheat, enabling a record crop. It is also a fact that the physical prices for the 2020 harvest are rising. They hover around $199 per tonne FOB.
In Ukraine, many crops have benefited from the rain that has fallen. Only in the south and center does the local area remain too dry. It has been very dry since autumn – just like in Russia. This has an irreversible effect. The government expects 65 to 68 million tons of grains to be harvested this season, compared to 75,1 million tons last year. Market analysts are talking about 68 to 72 million tons. For wheat that is 24 to 25 million tons, where 28,3 million tons were harvested last year. In this country, too, the physical prices for the 2020 harvest are rising at a similar price level as in Russia.
Drought in Europe
In Europe, France and Germany play a key role for wheat. New French yield figures are expected this week. The European Commission's MARS report provided more clarity last week. The hectare yield of all grains is in the red, as is that of rapeseed. Drought is the cause. In Europe there was much less precipitation, so that there is no question of lighting for the crops. If the situation continues, and that is expected, the situation could develop into a very worrisome situation.
The question is how the international grain market will digest this news. The EU played an important role in the 2019-2020 export season, partly due to the low exchange rate of the euro against the dollar. Now that the wheat of misery is arriving early in many European countries, the question is how much can be exported. Favorable signals from India, Australia and South America, plus the still significant harvest in the Black Sea region, are currently tempering a rally.
summarizing
In short, the coming weeks will be crucial for the price formation of grains, mainly wheat. There is currently no widespread precipitation for the next 14 days. New yield cuts are therefore inevitable, which means that prices can take a step up. If more clarity about the size and quality of Black Sea wheat becomes available, then the biggest barrier can be removed.