Is now the time to hedge on wheat?

The Matif was sharply higher last week for the new wheat harvest. The week closed at €232 per tonne for September delivery. Gas will be withdrawn on Monday afternoon at a price between €225 and €227 per tonne. May 10 is the last trading day for the old harvest. The physical market already fell slightly last week. In Rotterdam, feed wheat was quoted at €250 per tonne, which was €4 more a week earlier. The regional fairs still rose slightly in price. Feed wheat is offered at prices around €240.

Crops deteriorate
A few weeks ago, arable farmers were able to secure their new harvest for €200, which has now increased to €210. Perhaps a good cover moment has been reached for those who would like to do some business. In the EU, grain crops are in relatively good shape, although the low temperatures this spring are clearly having an impact on crop development. There are reports of drought, especially from France. 79% of wheat is now described as good or very good, which was 86% a few weeks ago. Better sounds come from Germany. More precipitation has fallen elsewhere in Central and Eastern Europe, but the temperature is still lacking.

Analysts are also positive about crop development in the Black Sea region. It is good in most places. The sowing season is still in full swing for spring wheat, among other things. That is considerably later than last year, but not very different looking at the multi-year trend. Anyone who looks closely at the growing conditions in Europe may conclude that there is (too) little going on to justify using a price of €230. It should immediately be noted that a lack of precipitation can quickly become an issue. The second half of May brings noticeably warmer weather but little rain.

Drought in US & Canada
In North America the starting situation is different. The wheat price is at its highest level in 10 years. The old harvest is listed at $284 per tonne on the CBoT and the new harvest has also risen sharply in price. It is currently very dry on the Canadian prairies and this also applies to the American states of Montana and the Dakotas. In addition, it is still very cold in the US and there is still snow on the ground in early May. Arable farmers can still respond to the market with their area planning for spring wheat, making this an interesting indicator for the market.

What plays a role in the US and elsewhere in the world is the price of corn. There is no precipitation in Brazil, making it very difficult for corn crops to develop there. It adds fuel to the fire of the grain traders. In the meantime, China has already drawn heavily on American corn supplies and is also starting to make more and more bookings for the coming season. This gives arable farmers confidence that the market will remain good in 2021-22. At the same time, more and more reports are emerging that the number of ASF outbreaks in China is at a much higher level than the country itself reports. If the pig herd is hit hard again, the grain market will feel the consequences immediately.

Livestock farmer pays bill
In addition to China and Brazil, the biofuels market also plays an important role in determining the price of corn. President Biden's policy is heavily focused on green fuels such as ethanol extracted from corn. It remains to be seen to what extent his plans are realistic because there is simply not enough raw material available for the planned production. It ensures that the foundation under corn – and to a lesser extent wheat – feels rock solid. Stock exchange traders and especially funds are noticing this, which are pumping billions into the commodity market. To the fear of the established order, who fear that the market will become inflated and too speculative. It is the livestock farmer who ultimately pays the bill for the expensive feed raw materials, while those costs cannot be recovered from sales.