The wheat quotation on the European Matif and the US CBoT have gone through an opposing trend in recent days. The Matif rose to its highest level since March 2008 as the CBoT declined. What is going on here?
The wheat price on the Matif closed yesterday (Tuesday, August 24) at €272,75 per tonne, while the CBoT remained at €224,62 tonnes. The fact that CBoT is approximately €20 to €30 lower than the Matif is common, although the prices have been very close to each other in recent months. The sudden difference of almost €50 is therefore remarkable.
Harvest is smaller than expected
A frequently heard explanation for the relatively high grain prices is disappointing harvests. The French market agency Agrritel announced yesterday (Tuesday, August 24) that it estimates the French soft wheat harvest at 34,93 million tons, a yield below the 10-year average. In June, the agency predicted one of the best harvests ever for the largest wheat producer in the EU, with 38 million tons.
Periods of bad weather during flowering and grain filling have caused significant damage to yields and quality. This is not only the case in France but also in other major grain producing countries in the EU. Due to the disappointing hectoliter weights and protein contents, there is less baking wheat. The French trade association of millers ANMF warned earlier this week about rising flour prices. Baking wheat is bad enough, but prices are at a high level and the mediocre quality means extra work and costs for the processors.
Export benefit
The above is one of the reasons for the high wheat price, but it does not explain why the difference between the Matif and CBoT is almost €50 per tonne. Other factors play a role there. First of all, Europe is logistically favorable for the export of wheat, especially to the Middle East and North Africa. This is often cited as the cause of the difference between American and European wheat prices. This is currently further reinforced by a relatively low exchange rate for the euro. This means that European wheat has a competitive advantage on the world market.
Development outside the agricultural sector
But there is something else going on. For this we need to look more broadly at the (American) financial markets. Reports of disappointing economic growth in Asia, a possible end to the bond buying program by the US Central Bank, rising inflation and declining consumer confidence made investors nervous. Last week, many investors withdrew from riskier investments and the prices of commodities and shares, among other things, fell.
In that sense, the price development of American wheat fits into a broader trend. This time the wheat price at the CBoT is not determined by the weather, harvest and consumption estimates and stocks, but by a general economic trend according to various analysts.