The course of wheat flew off the starting blocks in 2021. Fueled by news about export duties and the risk of frost damage, the futures are reaching new heights. The wheat price has not been that high since 2013. The current movement is very similar to the volatile and emotional price of bitcoin. Does this mean that the price could also fall sharply again?
Since December 21, the contract on the Matif has been on an upward trend. The wheat price has risen by €23,50 per tonne. The September contract also reached the limit of €13 per tonne on January 200 and is currently trading €2 higher. The American stock exchanges are closed on Monday, January 18 for Martin Luther King Day.
Doubling export tax
An export tax of €25 per ton of wheat in Russia ensured that the wheat price could accelerate in December. At the end of last week it became clear that this tax will be doubled for the period March 1 to July 1. Grain maize and barley are also subject to levies. That is why prices are taking another step.
In the physical market it means that Russian grain exporters are now trying to purchase as much wheat as possible. The first levy of €15 will come into effect from February 25. Physical prices have risen sharply in a short time, to $298 per tonne FOB. That converts to €247. A week earlier the price was still about €19 lower. Russian arable farmers were already extremely reluctant to sell their wheat. If exporters want to get product now, they have to dig deep into their pockets.
Winter is coming
What also plays a role is that King Winter is also in Russia. In the Volga region (in the southwest of the country), temperatures have dropped significantly. Because little snow has fallen this season, there is an increased risk of frost damage. Sufficient snow also means that moisture reserves can be replenished. Last autumn it was very dry, although crops developed well.
In the short term, the wheat price still has sufficient fuel to rise. Also the technical analysis is still positive. Yet the chance of a correction is increasing now that prices are rising to a rare height. Countries in Asia and Africa have to purchase wheat, but at price levels above $300 per tonne this becomes more difficult. Turkey initially announced a tender, but withdrew it at the last minute. They say it is due to weather conditions, but analysts think it has to do with the price. In any case, countries that already have a weakened financial position due to the corona crisis are finding it increasingly difficult to replenish their grain stocks.
Influences of the weather
Weather conditions play another key factor in the market. Large parts of Europe have suffered a cold outbreak, but new weather forecasts call for slightly milder temperatures. The status of the crops will therefore play an increasingly important role in the market, to determine how large the 2021 harvest will be. In the United States there are still concerns about dry growing conditions for wheat.
There is also talk of a variable export tax on Russian wheat for the coming harvest year, which could eliminate an export peak at the start of the new season (July 1). If we look at the global trade balance and harvest at the same time, the current high price cannot be matched. A 5% larger harvest is expected for the United States. In Europe - where crops are in good shape - a wheat harvest is expected to be 11,3 million tons above last year. The Russian wheat harvest is also estimated to be larger than a year ago.