Analysis Cereals
Wheat price falls, but uncertainty remains
The European and American wheat markets have gone through a period of price recovery. In the meantime, the market has cooled down considerably and there is a lack of signals to push the price to a higher level. European wheat is (too) expensive and that is being felt in the market.
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Choose the subscription that suits youOn Friday, January 14, the price of the March contract for wheat on the Matif in Paris reached a provisional low of €263,50 per tonne. The price then managed to rise in just over ten days to a height of €290,75 per ton on Tuesday, January 25. Last week the price fell again, reaching a bottom around €278 per tonne. On the last day of January the price turns red again. The price for wheat is not moving much from its place.
The wheat price has also peaked on the CBoT. The price almost reached the level of $300 per ton, but eventually had to let go. The price recovered somewhat at the end of last week.
Mars Bulletin
It was published exactly a week ago Mars Bulletin for January. That did not reveal any shocking news. In particular, the fact that grain crops in the Black Sea region are at risk of frost damage gave the market pause. It is not cold there and recent precipitation in the form of rain has ensured that much-needed moisture reserves are replenished. Cereal crops in the EU are in good shape.
What has concerned the market more are the political tensions in Ukraine between Russia and the West. Before wrote we analyze that retaliatory measures against Russia – in the event of an invasion – could cause barriers to wheat exports. Ukraine itself could also be seriously affected. For example, by blocking or capturing the Black Sea ports. Ukraine is expected to export 24 tons of wheat this season, making it one of the largest exporters worldwide. Russia and Ukraine together control 30% of global wheat exports.
Price doubling
For countries in the Middle East and North Africa, a blockade of Black Sea wheat is a major disaster. In addition, the global wheat balance is currently already very tight. According to USDA figures, there is a shortage of 8,8 million tons. If several million tons of wheat are no longer available, this will have a huge impact on price formation. Rabobank analyst Carlos Mera even takes into account that wheat prices can rise in a short time double.
About 45% of all Ukrainian wheat is grown east of the Dnieper River. This natural border – with the capital Kiev on the west side – probably functions as a natural border for Russia's urge to expand. That is a considerable area of grains that falls into Russian hands. For the time being, it remains a 'what if' scenario, but one that concerns the market and its participants on a daily basis.
The French position
Whether there will be a new cold war or not, the grain market also has other problems to tackle that are now a fact. Due to a devaluing ruble, Russian wheat is very competitive. The price may be higher, but significant volumes go to North Africa, among others. A country like Algeria has always been a great French destination because of its colonial past. Since the country relaxed wheat import requirements last year, the Russians and Ukrainians have gained a foothold. France must move to Egypt or Asia to sell its grains. Looking at the last Gasc tender from Egypt, the country does not appear even once.
A conflict in Ukraine immediately tilts the advantage in France's favor, but that remains a waste of money. Importing countries are now choosing to purchase as little wheat as possible and to reserve volume for the new harvest, the price level of which is several tens of euros lower. That is common in an expensive wheat year. When Russia annexed Crimea in 2014, the European and American export markets also benefited. Eight years later, both countries' market shares on the global wheat market have doubled, meaning the impact could be much greater.
More expensive corn
The contrast between the issues of the day and the harsh reality is increasing on the grain market, which is especially noticeable in wheat. However, the corn market is not left untouched. There is a significant price spike in both Europe and the US. The March contract on the Matif was quoted at €258 per tonne on Monday afternoon. A prize that has not been achieved since November 25.
Due to the high demand and good export opportunities for Russian wheat, the influential Russian market agency SovEcon has adjusted its export forecast upwards. The company expects 200.000 tons more exports, bringing the total to 34,3 million tons. This correction is mainly due to increasing demand in Q1 of this year. Russian Analyst Andrey Sizov says on Twitter that the chance of an invasion is small, but the possible consequences are great. He sees it mainly as a diplomatic war that will continue to have a grip on the grain market in the coming period. That means plenty of room for volatility and suddenly changing prices.