Acting now puts firm ground in wheat balance

It is mainly the cost of fertilizer that changes the cost of winter wheat. Those who spent 250 euros per hectare on fertilizer last year might pay 600 euros next spring. A price increase of 140%. If the nitrogen application is partly given in the form of slurry, the increase may be slightly lower. It is not inconceivable that next spring the amounts to be received for slurry will also be a lot lower than arable farmers are used to. Those who are logistically unfavorably located may have to pay for slurry.

Prices new harvest
Wheat prices have also risen sharply in a year. A year ago, wheat for the new crop could be sold on the Matif futures market for amounts around 190 euros per tonne. The September 2022 contract now stands at 240 euros per tonne. Looking at the multi-year wheat price, that is a relatively high price level.

In the physical market, the wheat price for delivery to the well in August 2022 is now around 225 euros per tonne. As a rule of thumb, a price is used that is about 10% below the futures market quotation. At the moment this is even slightly less at 6%. That's not a big deal – certainly not compared to the current prices of about 270 euros per tonne – but they do offer certainty.

Revival continues?
Insiders do not expect the wheat market to lose much in the coming season, although that is still very far away. There are several reasons to believe that this will be the case. During the corona pandemic, countries around the world have exhausted their stocks. These need to be supplemented and that has still not happened. Moreover, countries that depend on imports would rather have too much stock than too little. If the wheat remains relatively high priced, expensive wheat will have to be purchased and the countries prefer not to do that.

Another reason that can already be said about the acreage. Wheat may yield more than in the past 9 years, but it is not self-evident that arable farmers also sow it. To start with, the weather conditions play an important role. In Russia it is still very dry and this ensures that arable farmers do not sow. In addition, it is not wise to gamble at current input prices. It is also dry in the US for sowing winter wheat. Entrepreneurs have a choice because rapeseed also has a very high market price. In addition, other oilseeds such as sunflowers are also in demand and the maize price is good.

Russia uncertain factor
Ultimately, the growing season has the most to crumble in the milk. How do winter grains come out of the winter and what does the weather do. Russia remains an uncertain factor. The grain sector assumes that export restrictions will be tightened further at least in early 2022. For example, by raising the rates or other additional measures. The world's largest wheat exporter is thus further restricted. This too could have far-reaching consequences from which the EU can benefit directly.

The December contract on the Matif reached its highest price since 15 on Friday, October 2012. The contract closed the day at 276 per tonne. The price picked up after new US production and inventory figures. There are also rumors that China is buying wheat in Europe. On Monday, October 18, those rumors were somewhat weakened or at least not followed up with facts. Without new arguments, the exchange rate therefore fell a few euros to 273,25 per tonne. Significant news to steer the course in a direction should come from the acreage in Europe and Russia, but also the upcoming Australian grain harvest. The first resistance of the price is 300 euros per tonne.

Correction
In the medium term it is not inconceivable that a correction of several tens of euros is also possible. Especially when the wheat market lacks news and when buyers are deterred by the ever-rising price level. Hedging on the opportunities that the market now offers is therefore not so bad.