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Inside Cereals

New and old wheat price gap continues to grow

25 February 2021 - Niels van der Boom

After the European wheat quotation again made significant gains last week, a new step was taken on Wednesday 24 February. A rate of €245,25 per tonne has not been seen since February 2013. Meanwhile, the price gap between the new and old crop is growing.

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On Monday and Tuesday, the wheat quotation for March in Paris initially closed at a slightly higher level. On Wednesday, February 24, a jump of €4,50 per tonne (+2%) was made. At the CME Group in Chicago, the wheat price yo-yoed more up and down. There too, the price took a significant step on Wednesday from $5,33 per tonne to $249,95. This breaks the old record from 2021 ($248,20).

Difference old and new harvest
This price revival increases the 'price gap' between the old and new harvest. At the start of this week, the September contract on the Matif again exceeded €200 per tonne. The difference between the old and new harvest is now €42. The December contract follows the same price as September. This price gap must be closed in the run-up to the new harvest. It means that one quote or both quotes must rise or fall to find each other again.

A tight situation regarding the European wheat supply, which is now becoming more important for destinations, is causing a revival closer to home. Meanwhile, market agencies are scaling back their expectations for the 2021 Russian wheat harvest. The influential SovEcon expects the country to harvest 76,2 million tons of wheat. This is 9,7 million tons less than last year. Unfavorable weather conditions and a smaller summer wheat area are the causes of this.

Spring starts cautiously
In Western Europe, spring has slowly arrived after a winter period. This is still in full swing in Eastern Europe. Looking at the acreage of grains and the conditions, the expectations for the coming harvest are positive. More sales are also expected due to Russia's less dominant position. This can give the price for new harvest wheat a firmer foundation, but the question is whether it can continue to rise to current levels. It is simply far too early for that. The weather conditions this spring and especially during grain filling are crucial for the harvest forecast and therefore price formation.

The American stock market is mainly strengthened by the 'US stimulus bill'. A financial program worth no less than $1,9 trillion that should help the country's economy recover after the corona crisis. An agreement is expected to be reached this Friday, allowing him to be signed in mid-March. That gives confidence to the stock markets, and also to commodity trading. China remains on the market for raw materials, but new sales figures are not forthcoming.

frost damage
What matters for wheat in the US is the very cold weather. Not all areas have had sufficient snowfall, which means that frost damage may cause casualties. The crops are doing well on average across the board. In the states of Nebraska and Oklahoma, lower figures are given compared to a year earlier.

Corn and soybeans also peaked on the commodity markets. Corn on the Matif already made a big jump last week. Soybeans in Chicago rose again. This makes them even more interesting for American growers. The soy price must be 2,3 times the level of the corn price to convince arable farmers. Currently, the price of soy is 2,5 times the level of corn. According to recent USDA area estimates, the corn area will increase by 500.000 hectares next season and the soy area will indeed increase significantly.

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