The European wheat futures market closed €21,75 higher on Monday evening than Friday's closing price. This puts the contract for delivery in September at a record €438,25. Can the wheat price rise further or will there be a correction in the wheat market?
The futures price for wheat on the CME in Chicago also closed higher. The July contract there closed at $12,47 per bushel. The maximum price increase of 6% was achieved yesterday, before day trading started. Then trade was frozen.
India's exports restricted
The main reason for this increase was last weekend's news. The government in India announced the export of wheat. Two heat waves caused damage to grain yields within the country. Stocks, which are already not at a sufficiently high level, may not be replenished. Food inflation is also an important issue in India. With the largely disappearance of Ukraine, the country saw a starring role for itself. Now it appears that it may have overplayed the hand. A predicted export of 10 to 12 million tons is certainly not feasible.
Analysts had mixed reactions to the news. The details are largely unknown. At the same time, it became known that orders already placed would be honoured. Egypt, among others, has already purchased 500.000 tons of wheat from India. This means that the export ban may have less effect than initially thought.
Drought costs revenue in France
Persistent drought in Europe means that analysts and stock traders are paying close attention to the consequences for yields. Especially in France, the drought is a threat to grain crops, including wheat. Some rainfall has fallen in the country in recent days, but not enough to help the grains recover. The largest farmers' organization in the country (FNSEA) warns that this has consequences for yields.
Today the grain market is probably calmer after Monday's boom. It is a matter of looking for new starting points and evaluating the current state of the global market. Russia is in good shape, but exporting enough grain is a challenge. In Ukraine the growing conditions are good, but the area is considerably smaller. Export is also a huge problem.
Sowing US makes a big jump
The US market can cling to the latest crop progress-figures on the sowing of corn and soy. The USDA Department of Agriculture reports that 49% of all grain corn was in the ground last weekend. On average this was 67% over the past five years. Farmers have done a lot of work in just one week. 30% of the soybeans have now been sown, compared to an average of 39%. Spring wheat is 39% sown compared to 67% on average. Analysts expect that a lot of sowing will take place again this week. Conditions are good in many places in the corn belt.
Nearly half of America's winter wheat is now in the ear. This means that growth is lagging behind slightly. Only 27% are classified as good/excellent. 41% are poor/very poor. Last year, almost half of the winter wheat was in good condition.
In overnight trading, the price in Chicago is up again, but not with the big jumps of yesterday. An additional 20 dollar cents was added to the July contract. Corn turns red now that it appears that a lot has been sown. Soya does show a small plus.
Final Thoughts: Take the Next Step
The grain market is now looking for the next step. A wheat price well above €400 is exceptional. Can a new step be taken, or will a correction follow? That primarily depends on the weather. Scattered showers occur on the European continent, but the picture is variable. For now it moderates the drought stress somewhat. Geopolitical news like that from India can push prices higher in a short time, as we have seen. With a low ending stock, high demand and difficult exports, it does not take much for the price to spike further.
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Hedging for the 2022 and 2023 harvest
The contracts for 2023 are also priced very high on the Matif. The September 2023 contract closed on Monday at €369,75 per tonne. If you compare this to a five-year average price level of €195, this price level offers a good opportunity to hedge in the long term now. That's worth considering. Many arable farmers are particularly looking at the September 2022 contract. Nearly €400 per ton was paid at the end of last week for delivery to the well during harvest, insiders report. With yesterday's price increase, this illustrious level may now be achieved.