The price of wheat on the Matif in Paris has bottomed out and is recovering. This is also reflected in the price today (7 February). In the absence of news from the east (Ukraine) and west (US), the market has to look for new facts that can indicate the course. What is driving the green numbers?
On Monday, February 7, the March contract for wheat on the Matif is trading at €267,75 (as of 15:30 PM). A plus of €2,25 compared to Friday's closing price. On the last trading day last week, the price was able to recover slightly, after hitting the bottom in the market on Thursday. Since the end of January, the price has fallen by almost €30 per tonne. A rate of €261,25 per tonne is the lowest since the end of September.
Expensive euros
Confidence in the wheat market also crumbled in the United States. The price on the CBoT fell by about $23 per tonne. This means that the loss is smaller than in Europe. What the European market faces is an unfavorable competitive position. This is becoming increasingly exposed. A rise in the euro against the dollar last Thursday pushed the wheat price to its lowest level in four months.
A relatively expensive euro against the dollar (€1 to $1,14) and a favorable exchange rate of the Russian ruble mean that wheat from France, Germany or Poland is more expensive. What also doesn't help is that arable farmers are still firmly in the saddle in these countries. They have little interest in trading. The prices of inputs are still rising and the current market must ensure that these costs are compensated.
Exchange rate remains important
Exchange rates remain an important instrument in relation to Europe's grain exports - which, by the way, do report excellent figures for January. If the ECB continues to express its concerns about rising inflation, this could further increase the euro rate and thus undermine the European wheat price. The recent price reductions do help to make European wheat more competitive. With the high volume of new tenders from North Africa, this is positive.
During the start of the Winter Games in China, Russia announced an agreement with the country for the export of wheat. Previously, Russian wheat was not allowed in all regions of the country due to phytosanitary rules. These have now been cancelled. China is the largest wheat importer in the world, which the largest wheat producer can now benefit from. Europe (France) in particular was an emerging supplier to the country.
Then there is the political situation in Ukraine, which the market is following closely in the background. News on this front can quickly change the direction of prices, as the past has shown. A threat in the east has significantly more impact on the market than the corona pandemic, which you would almost forget in the current grain market. Corona is certainly not out of the world, but it has little influence on the price formation of grains. Only the logistics disruptions are a noticeable consequence that the global market has difficulty living with.
Quiet phase
And so the wheat market quietly ripples through February. If things remain calm on a political level, the market has little to fear in this phase and the direction for the final period of the sales season will only be decided in March or early April. In the US there are concerns about extreme drought in the west of the country. This is also the case in Canada. It will not affect the market at a global level, but it will certainly become an important argument towards spring.
This weather problem does not exist in Europe. Sometimes it even feels very spring-like, allowing winter grains to develop well and summer grains to be sown carefully. Looking at malting barley prices – which are reaching records in the EU – arable farmers are probably eager to get spring barley into the ground.
Thinking about the new harvest
Now is also a good time to think about the coming season. With the cautious price recovery on the Matif, the September contract has also risen above €250 per tonne. That's still a great price to sell for. In the physical market that level is still a tenner lower, but looking at the multi-year trend it is still an above-average level. Especially for delivery during or just after the harvest. Don't let that opportunity pass you by.