A decline in wheat prices in Europe was partly triggered by the improved wheat harvest in Russia. In the south and center of the country, this is more favorable than previously thought. However, it is not positive everywhere. Summer cereals in particular – but also grain maize – are hit by major drought in the east.
For a long time, Russian arable farmers held on to their new grain supplies, which kept the price level stable. More supply is now available and pressure is building due to the grain harvest. More than half (56%) of the country's wheat has been harvested. At the start of this week, prices drop to $200 FOB for wheat with 12,5% protein. A favorable price level, coupled with a low exchange rate of the ruble, ensures that the country can do a lot of trade. Last week, the Egyptian state agency GASC, among others, again bought large quantities of wheat.
Drought in the east
The south and center of Russia have a good harvest this year. In the Volga region, yields are even 17% higher compared to 2017. However, the eastern areas of the Urals and Siberia have a very dry growing season, which has significantly hindered the growth of spring wheat. Analysts therefore remain cautious when making forecasts. In the first 6 weeks of the new export season, Russia exported 4,5 million tons of grain, of which 3,6 million tons of wheat.
France and Germany, in turn, expect to export less wheat due to Russian dominance on the world stage. France because of one smaller own harvest and Germany because it cannot keep up well in terms of price levels. In Germany, the wheat harvest has almost been skinned and more can be said about the yield. It turns out slightly better than previously thought. This also applies to Poland. Germany is expected to have a 6,8% smaller wheat harvest than last year. In Poland an increase of 5% is expected. Due to favorable harvest conditions, the quality is good this year.
Significantly less wheat from the UK
In the UK, wheat crops have been more affected by wet conditions in June and July. This causes more quality problems. A significantly smaller area means that the wheat harvest will decrease by as much as 35%. According to government agency AHDB, about 50% of the area had been harvested by mid-August.
Confidence in price
The September contract on the Matif reached its lowest point since the end of June on Monday, August 10, breaking through the bottom of €180. This caused buyers to become active, pushing the price up. The week closed at €180,75. On Monday, August 17, the stock market took another big step up. Analysts and traders expect the figures from Russia to become less rosy. Also the news from the US creates more confidence in the European grain market. In addition, Argentina expects less wheat than previously thought, due to persistent drought in that country.
Solid bottom
The $180 bottom still looks solid with these facts in mind. At this time of year the price normally drops due to the pressure of the new harvest. For now, however, we can look upwards cautiously. News for a much higher price is not available for now. If the Russian harvest is disappointing and corona creates new uncertainties, structural improvement (€190 or higher) for the longer term is not unthinkable.