Exactly one week after the record high of wheat prices on the futures markets in Paris and Chicago, the prices have collapsed. For example, the December contract on the Matif lost €12,25 per tonne on Monday and the prices also turned red on Tuesday. What factors underlie this?
Week 47 was special in several ways. In the United States everything revolved around Thanksgiving on Thursday, November 25. A holiday that has more meaning for many Americans than Christmas. It is known that prices can fluctuate wildly during this week and can sometimes shoot up suddenly. That also happened, especially with wheat. When the news came that the Australian grain harvest on the east coast was taking a serious hit due to severe weather there, that was the spark that started the fire.
Deep red numbers
The CBoT in Chicago closed on Tuesday, November 23, at $314,53 per tonne, the highest price in years. The Matif even set a record: €311,50 for the first available contract. Ultimately, the week ended at just under €300 again. Especially on Monday, November 29, the Matif had to make a lot of concessions. Wheat lost €12,25. At the end of the morning on the last day of November, the price of the December contract is again down about €3. Corn is also trading significantly lower, at €240 per tonne. In the US, the major commodities are all lower.
What factors underlie this? We list a number of them:
1. Fear of omikron variant
Since the end of last week, when more became clear about the highly contagious omikron variant of the coronavirus, fear has arisen on the stock markets. The grain market also built its foundation on global economic recovery. This new mutation of the feared virus could disrupt that planning, although the news about possible consequences is weakening. The fear is there now. That was noticeable on Friday and certainly on Monday.
2. Drier weather in Australia
The big news event that turned the grain market in week 47 was the reporting from Australia. A lot of rain fell, especially in the state of New South Wales. Locally up to 200 millimeters or more. This not only results in a smaller harvest, but also a lower wheat quality. Right now the world market is looking for baking and milling wheat with high specifications. These are much less available in the Northern Hemisphere. The combine harvesters on the east coast are now running again and the worst of the problems have now been alleviated. The country is still heading for a record harvest.
3. Top harvest in Argentina
Argentina is usually mentioned when it comes to grain corn and soybeans. Yet the country also grows a considerable volume of wheat. There is interest in this, especially in a tight season like this. More than a third of the harvest has now been harvested. According to the Buenos Aries Grain Exchange, a volume of 20,3 million tons is expected. That is 500.000 tons more than previously thought and even 2,3 million tons more than in 2020. The USDA still estimates 20 million tons, which is a record in itself. According to the US Department of Agriculture, 13,5 million tons can be exported to ease the global market. This partly depends on the share that Australia can offer with their rained-out harvest.
4. Danger of high price levels
As Jaap Haanstra recently wrote in a interview said: “The danger of a high wheat price is the price itself.” This is visible in wheat. The fact that Egypt bought 600.000 tons of wheat from Russia, Romania and Ukraine in a new tender round for delivery in January currently provides little input to the market. Feed companies are switching more to corn because wheat is becoming too expensive. People are still buying, but a counter-narrative is becoming clearer. This slows down the wheat market in the short term.
Grain corn and soybeans are being sucked into the wake of the wheat market, despite the fact that the US, for example, has excellent export figures for both products. The harvest there is now 95% completed. What does not help the Americans is a rising value of the dollar. Rain in South America ensures good harvest expectations there. The corn harvest is also nearing its end in Europe.
How further?
December is normally a quiet month for the grain market in which prices often show a stable or slightly downward trend. The holidays are favorable for the fair this year. Both Christmas and New Year's Day fall on a weekend. There are no interruptions in terms of trading days. We now have to wait and see whether we will have to deal with serious winter weather throughout Europe, which is already happening locally. A new impulse comes when the grains come out of winter and start growing again. Meanwhile, it is the harvests in the Southern Hemisphere that guide the markets. It may take several months before the grain market – and wheat in particular – can show a significant price recovery.