After a slightly lower close on Friday, the European wheat market is looking up again on Monday, April 26. The level of €250 per tonne is thus becoming increasingly clear. The new harvest has also been able to take significant steps. What are the arguments for this?
The global wheat market is faced with a tight supply and demand situation. Especially now that it is persistently cold and dry in all growing areas in the Northern Hemisphere. The last crumbs of the old harvest are selling for increasingly higher prices in France and Russia, among others. This despite previously imposed export taxes.
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China again copper
Yet the grain market is mainly focused on the 2021 harvest year. Europe has a new buyer: China. Persistent stories are circulating that the country is once again turning to the EU for wheat. This only applies to wheat originating in France. China has also bought wheat from this country in the past 2 years. For the 2020-21 season this amounts to 1,6 million tons. That is comparable to the season before. China's policy is to be less dependent on 1 or 2 suppliers, especially North America.
How much wheat the country bought in France is a guess. Estimates range from 500.000 tons to as much as a million. According to rumors, they would be shipped this summer. Thanks to skyrocketing US corn prices - the highest since July 2013 - wheat from Europe has a competitive advantage at $20 per tonne delivered to Chinese ports. By the way, wheat from North America is also cheaper than corn at the moment. The continued Asian demand is good for France. North African customers are increasingly buying Russian wheat.
The barley market is also improving
The agreements with China took place before the revival on the Matif last week, which will therefore receive extra support. The barley market is also looking more positive. China is boycotting Australian barley and also purchasing it in France.
After a major rally, the grain market in Paris took it easy on Friday. After this breathing space it will continue on Monday. The price jumped from €236,25 to a high of €243,75 per tonne. The price level of €250,00 for the last remnants of the old harvest is becoming increasingly clear. Also the expiration date of the May contract on the 10e comes into view. This makes it a final push for the commodity.
Price of new harvest rises
The new harvest was fairly stable during April between €197 and €200. This changed in mid-April and from the beginning of last week it rose rapidly to €220,75 per tonne. On Monday afternoon the price is already at €223 and the December contract is also following that flow. The persistently cold and especially dry weather is one of the main causes of this movement. This is not yet really visible in the harvest forecasts. However, even with a good harvest, the supply and consumption situation remains tight. That puts bulls more firmly in the saddle. Funds also buy into the futures market. They gamble on higher prices (net long). Some rain is expected in the EU in the short term, but in the long term it will remain dry and unusually cold.
Another reason for the wheat price increases is the upward movement of grain corn in Paris and Chicago. Low temperatures in the US hinder the sowing of corn and due to drought, corn crops in Brazil do not grow well. Add cold weather in Ukraine and Russia to that and you have enough worries about the new corn harvest. The total harvest figures remain above those of 2020 for the time being. The cold weather in the US is also far from good for soybean sowings, which shot to their highest level in 8 years late last week.