The most active wheat contract in the futures market Matif rose by €11 per tonne last week. The American listing also made a significant jump. Different ingredients have a price-increasing effect. This also raises the question of how long this situation can last. We list the pros and cons.
Main points
The December contract on the Matif ended Friday, October 1, with a closing price of €264,25. That is a record for this contract and the highest price since August 24. The price of wheat also rose considerably in the US. The price added nearly $18 per tonne in one week, with a closing price of $277,51 per tonne for the December contract.
US figures
The direct cause of this price movement must be sought in the previous week appeared USDA Department of Agriculture report in the US. State Department officials estimate that US wheat stockpiles are the smallest in 2021 years. It also became clear that the wheat harvest of XNUMX will be much smaller than average. It is the smallest volume in nearly two decades. Combined with good export expectations, it is therefore likely that the closing stock will also be very tight next year.
The European futures market also reacted strongly to this news. Closer to home, there are other important factors at play. Despite the current price levels, arable farmers are hesitant to sell. This is especially the case in Central and Eastern Europe. Despite the sharply increased input costs for the coming season, they are leaning back. The prices are good and so are the expectations. At the same time, weekly tenders are launched, especially by countries in the Middle East, who are trying to get as much raw material as possible. This results in more wheat being bought in the west of the EU.
Baking wheat premium
This move is weighing on the already tight wheat balance sheet, especially in France. A third of all wheat in that country does not have proper milling wheat specifications. It is therefore not surprising that the baking and milling wheat premium is currently double the normal amount. A weak euro exchange rate makes European wheat attractive on the world market.
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This concerns quotations of feed wheat. These fluctuate between €223 and €238 per tonne. For baking and milling wheat, €264 to €268 per tonne is paid.
Normally, Russia is dominant at this stage of the export season. The grain superpower is still there, but much less than we're used to. For starters, there's the export tax – which rose another $5 per tonne last week – and the sharply higher physical market price. It is therefore not surprising that the rumor mill is still talking about tightening measures to suppress the high prices. If this becomes a reality, the market may react violently with a sudden price spike.
Drought slows down sowing
Sowing winter cereals in Russia is not going smoothly due to persistent drought. That is also an important argument for the recent price increases. Also in the US it is very dry in certain wheat states, which also has an effect on the crops and the market price. In the EU, however, some delay is noticeable due to a wetter type of weather that presents itself at the beginning of October. In the countries around us, clearly more winter wheat will be sown this autumn. Whether this is also the case in Russia remains to be seen. The high export tax deters arable farmers from taking this risk.
As mentioned, the European wheat market is growing skewed due to a reticent position of companies in the east, which is increasing pressure in the west. Baking and milling wheat in particular benefit from this. The top of the market is increasingly visible, although a price of €300 per ton is not inconceivable for a short time. Certainly if Russia further restricts wheat exports. This is the level where the first resistance lies in the futures market.
Reached peak?
Looking at the positive harvest figures in Eastern Europe and Ukraine, the current prices and yield do not match. It is likely that the market will slow down in the short term. The first Australian harvest will hit the market at the end of next month. This country expects a good harvest. Countries in Asia can benefit from this.