The price of wheat is also rising again today (Monday, April 25) on the futures market in Paris. On Friday, the exchange rate of the old crop was already positive. This despite favorable growing conditions in Europe and the Black Sea region. The course for the 2022 harvest is also taking a step, although the question is for how long.
Three major factors play a role in the world wheat market. To start with, the export opportunities in the short and medium term from the Black Sea region. Secondly, the growth conditions in the United States and finally the price formation of other commodities.
Sudden change of course
The May contract for wheat on the Matif closed Friday at €407 per tonne and is above €410 on Monday afternoon. The contract periods for the new harvest have also increased again to a level of around €370 per tonne. In the short term, stock market participants are reducing their positions. The last trading day is May 10. This also attracts bargain hunters, so that the price can sometimes suddenly take a sharp turn. This is not likely to be the case at the CBoT due to built-in security instruments. There, the price for wheat actually fell, but today you can also see green numbers.
Wheat has shown an unprecedented market development this season. Both arable farmers and livestock farmers are faced with an important choice: should I wait to buy or sell the new crop or is it time to do business? Even with a discount premium, a physical price level of €320 to €330 is interesting for sellers. With favorable weather conditions on the European continent and improved export opportunities for Russia and Ukraine, the wheat market for the new crop could take a turn (read: decline). For livestock farmers, that means waiting.
Market within a market
Not all countries are eager to buy Russian wheat, but that is not the case everywhere. For some African countries it is a matter of survival and ally China is also targeting Russian raw materials, despite its own large stock. The world trade stage is thus being recreated, which cannot be without consequences for price formation in the longer term. Thus a market within a market is created when Black Sea wheat only serves selected destinations to friendly states.
War in new phase
The war in Ukraine has entered a new phase. While the grain market reacted to peace negotiations a month ago, it is now clear that it will literally be a debilitating and long-lasting conflict in which the country will be severely damaged. This costs many victims and affects the infrastructure. For the grain market this means that the output device can run at a fraction of the old capacity. In the meantime, there are kilometers long traffic jams in the country.
At the same time, arable farmers in Ukraine are doing everything they can to sow crops. The fact that the battle has clustered in the southeast is fortunate for companies elsewhere. This way they can go onto the land, provided there is enough diesel, fertilizer, seed, men and parts available. Estimates of the impact on yield vary. On average, about 20% to 30% less harvest is expected. Much depends on the availability of fertilizers and crop protection agents during the growing season. In the occupied territories, the agriculture ministry speaks of 70% less yield. In any case, the situation is slightly more positive than a few weeks ago. Market bureau UkrAgroConsult writes that 80% of the planned area of spring cereals is sown. A decrease of 2,7 million hectares (14,2 million hectares total). According to government figures, a fifth is now in the ground.
Construction plan changes
Ukraine is doing everything it can to export its stocks. This mainly concerns maize and sunflower seed. This year, building plans will be adjusted and these crops will be sown less. They require more fertilizer and the processing capacity for sunflower seed, for example, is lacking. Grain is popular.
Russian exports are also difficult. Nevertheless, the grain sector in the country is recovering and according to analysts – such as the Russian SovEcon – exports are again sparse from the Black Sea and Sea of Azov. It estimates that 3 million tons of wheat from the old crop still have to be exported. Because stocks of old crops remain larger than expected, this can be added to next year's total. A low rate of the ruble makes wheat extra attractive.
Unfavorable weather in Americas
In a normal year, the weather dominates the headlines in the news and also the grain market. It is favorable for growth in the Black Sea region and Europe. Elsewhere in the world, it's a different story. In the US, winter wheat is in the worst condition since 1996. Maize and soybean seeding is on average to below average due to persistent winter weather. It's far from spring in most states. In South America – Argentina and Brazil – it is very dry and that costs the wheat and maize yields.
These weather conditions ensured, among other things, that the US soy and corn market was higher last week. The markets got off to a hesitant start on Monday. The US can rely on new export orders from China, among others, for both the old and new harvest. That strengthens the market, also for the coming season.