A sharp increase in cultivation costs means that this is inevitably passed on in the selling prices of grains such as maize and wheat. It is one of the driving forces behind the rising prices. An undiminished question is another, although small fractions do arise.
On Friday, October 22, the December contract on the Matif closed at €280 per tonne. The September 2022 contract was quoted at €243 per tonne. On Monday, October 25, the European wheat quotation smoothly broke through the €280 barrier with a top of €283 per tonne. It is the highest price since November 2012. Grain maize was also slightly higher. The price of the November contract closed at €249.
US stock market also higher
The European wheat market has lifted the American one, which also closed sharply higher on Friday at almost $278 per tonne. This makes the rate almost the same as at the beginning of October. Corn also recorded a higher price in Chicago. In the Minneapolis futures market, wheat broke through the important barrier of $10 per bushel. A level not seen since 2012. Rain in the US is putting a halt to corn and soy crops, but it is positive for winter wheat. For a long time it was too dry to sow. The time is now running out to sow winter wheat.
Worldwide, the wheat market continues to grow skewed because Russians are chained by their own government. The export tax on a tonne of wheat will rise this week from $61,30 to $67 per tonne. In addition, the exchange rate of the ruble versus the dollar is very unfavorable for the Russians. It ensures that wheat buyers are already fully active in Australia. Asian destinations in particular can do well with wheat from this region. After a relatively wet growing season, the country is once again heading for a top harvest. Closer to home, the EU in particular benefits from Russia's lack of export dominance.
Drought hinders crop development
It is also dry in Russia, after a significant amount of precipitation fell earlier. The winter grains can probably cope with that. Less precipitation fell in Ukraine, which means that drought is slowly becoming an issue there. Poor initial development makes winter grains more susceptible to the harsh winters in the east. In the European Union moisture is not a problem. France had 40% of its winter wheat area in the ground last week. The harvest of grain maize throughout Europe is significantly slower because the ripening is considerably later this year.
What is fueling the grain market – in addition to production problems and export barriers – is rising agricultural inflation. Also called aginflation. Fertilizer is an important factor behind inflation, but almost all inputs are rising sharply in price. Sales prices therefore have to increase to leave a margin at the bottom line.
Agricultural inflation 20%
The British cooperative Anglia Farmers maintains an agricultural inflation index. On October 1, it stood at 220 points. An increase of 22% in one year. The biggest increase is fuel with a 77% increase. Fertilizer comes in second with a 51% price increase. Inflation of machines, parts and depreciation rose by almost a quarter. This means that agricultural inflation is at a much higher level than what consumers have to deal with.
In the Netherlands, farmers have at least four months before they have to spread expensive fertilizer. The autumn and winter period is mainly used to build up a stock. Many entrepreneurs are betting that gas prices will drop within a few months and that fertilizer will also become more affordable. Arable farmers elsewhere in Europe do not always have that luxury. They already add nitrogen and/or phosphate when sowing. In addition, the construction plan is already being tinkered with. A popular option, among others among French farmers, is not to grow grain corn but sunflowers. They require less nitrogen. In the United Kingdom, more arable farmers are choosing protein crops such as peas and field beans instead of wheat. In Russia, a smaller area of sugar beet is expected due to the expensive nitrogen. The expensive fertilizer therefore has consequences for the area and therefore also production. Especially when fertilizers are used more economically. Something that grains are very sensitive to.
Corn or soy
This situation is no different in the US. There the main question is: will it be soy or will it be corn. A formula has even been devised for this: take the futures market price of soybean delivery in November and divide it by the December future of corn. This ratio is now 2.33. At a level of 2.40 it is more attractive to grow soy. This crop does not require nitrogen. The difficulty for farmers is that both soy and corn are historically high in price. These are both factors for choosing one or the other.
Meanwhile, wheat buyers complain about the prices, but at the same time they continue to grumble about making purchases. Egypt has already postponed a tender three times. Other countries are also hesitant in their purchasing policies. The fact remains that supplies are very thin worldwide. Better to be too expensive than not to be able to buy, is the motto this season. The scenario remains rock solid in the coming months, especially for wheat. A price level approaching €300 is not inconceivable (for a short time). Here lies the first major resistance. History teaches us that after this pride usually comes the fall. This is also possible in one season. The price floor is also a firm one, around €250 per tonne.