December starts with price pressure on wheat market

Last week already closed lower, after the Matif price had a small rebound on Thursday. Ultimately, the December contract closed at €283 per tonne and the March contract at €290. The December contract expires on Friday, December 10, which means trading is now shifting. The Matif also recorded a minus on Monday, December 6, with a price around €280.

Omikron variant main headline
The raw materials market is still heavily influenced by the new corona variant omikron. It throws a spanner in the works of the financial recovery and thus the forecasts of commodity traders. The weather is playing second fiddle at the moment. Analysts are mainly looking at precipitation in South America, where it is a bit too dry for soybeans, and a lack of snowfall in the United States. This can cause frost damage in wheat and it is important to replenish moisture reserves.

News that Saudi Arabia has purchased 689.000 tons of wheat hardly stirred the market. The signal is mainly interpreted as bearish (price depressing). All wheat is from harvest 2022 for delivery in July of next year. The Saudis are thus steering away from the current extreme price level and are therefore betting on lower prices next summer. Perhaps the grain market will have to make do with little trade in the April-June period when more countries adopt the same price policy.

New shortages?
The bulls see it differently. They see the purchases as proof that wheat buyers are also taking into account a shortage and high prices in the coming season. By committing now they ensure that they have sufficient raw materials. Only time will tell who is right. As mentioned, bearish sentiment is currently prevailing in the market.

While the Northern Hemisphere is being lulled to sleep, the combine harvesters are rolling again in Australia, although new precipitation is on the way. It is not of such a magnitude that it will cause major problems. The total wheat yield has been revised upwards to 34,43 million tons, which is a record. It is an increase of 1,8 million tons compared to last season.

Canadian figures surprise
Canada also adjusted its figures on December 6. The country now expects 16 million tons of baking wheat. 700.000 tons more than the previous estimate. Analysts expected an adjustment towards 15 million tonnes or less. However, the yield of hard durum wheat has been adjusted downwards by 900.000 tons. This market will therefore become even tighter in supply. Durum wheat is mainly used for making pasta.

What gave the grain market some relief at the end of last week, and resulted in a price drop, is news about Russian export policy. The country will start an export quota on February 15. An export volume of 9 million tons is currently being discussed. That is significantly more than the 5 million tons that was previously taken into account. The physical price in Russia fell last week, after rising for six weeks. A ton of baking wheat now costs €298,50 Free On Board (FOB). A decrease of €2,66 compared to the week before.

Export is lagging behind
Analysts expect the country to have between 9 and 10 million tons of wheat to export between February 15 and June 30. The quota is therefore in line with these figures. Nevertheless, the exported volume is 36,5% below that of last season. This is due to a heavy export tax. Wheat from the country is therefore not as competitive as it has been in recent years.

The wheat market is entering a quiet last month of the year. Traditionally, December is usually not a month with much price movement. In all likelihood, that is not the case now. It should become clear in early 2022 which direction the markets will move. For the time being, it looks like there will be no new price peaks. The latest corona news has a downward effect on prices rather than driving them up, as was noticeable a year ago.