The wheat market is alive by the day and that is reflected in the prices. For example, there is a €11 price difference between the lowest and highest closing price this week. International markets are governed by the political game in Ukraine. The competitive position of European wheat also plays an important role.
On Monday, the Matif showed a strong recovery in the wheat market. The March contract closed at €274 per tonne after bottoming on Thursday, February 10. The wheat contract also rose in Chicago on Monday. The rate there was $294,13 per ton. On Tuesday and Wednesday the contract dropped just as much (€11 per tonne). The price is recovering towards the weekend. On Friday afternoon, the Matif is trading €4 higher, bringing the contract to €269 per tonne.
Price difference in new harvest is small
Striking: the difference with the new harvest is very small. For example, the September contract closed on Thursday at €257 per tonne and was even above €260 per tonne on Friday afternoon. The difference is therefore only €8,25. Stock market traders have more confidence in the new season. The importing countries are also in the competition. A similar situation is visible in the US. It offers an excellent opportunity for arable farmers to hedge against current price levels. A price of €260 is well above what is average. Usually the price even drops sharply during and just after the harvest.
Now that the political game between Russia and the Western world with Ukraine is flaring up again, the wheat price is also affected. Side effects can also be detected. For example, there are a striking number of bids from Ukraine for the latest Egyptian GASC tender. Possibly because exporters would like to see their products leave the ports before a conflict actually occurs. This also partly applies to Russia.
Price differences
The list of bids also shows that France is still struggling to keep up with price levels in the Black Sea region. The difference between the two countries is at least $3,34 per tonne. The difference with Ukrainian wheat is even greater at $6. Coupled with a favorable exchange rate compared to the expensive euro, this is an additional motivation for Egypt to buy Black Sea wheat. The prices are clearly labeled as bearish by the sector that is immediately reacted to.
A disappointing corn and soy harvest in South America is only having a limited impact on the wheat market. It mainly fuels the American prices, which are also strengthened by good export orders for the current and coming season.
Nervous odds
We have to look into the crystal ball to say something meaningful about the wheat market when the situation in Ukraine escalates. The effect on the wheat market – and to a lesser extent corn and other commodities – is undoubtedly major. A sharp price increase is most likely as an immediate response. Egypt has the most to lose, but is keeping a cool head - at least to the outside world - for the time being. It says it has sufficiently filled the order book and has stock for several months. The local harvest starts in April, bringing more wheat onto the local market.
In its latest forecast, the International Grains Council (IGC) has the lowest ending wheat stocks worldwide in nine years. Disruption in global trade due to a conflict in eastern Europe could therefore have major consequences for countries that are dependent on imports. A buffer is simply not available in the market.