Wheat prices on the Matif and the CBoT took a significant step back in the past trading session. On the Paris stock exchange, the price dropped well below €400 per tonne to its lowest level since May 3. Where does this sudden drop in the wheat price come from, according to many analysts?
The September wheat contract on the Matif was closed yesterday at €392,25 per tonne. That is 3,6% lower compared to the close a day earlier and for the first time in more than three weeks the price has fallen below the €400 limit. The other contracts for the 2022 harvest also took a big step back. The May 2023 contract closed at €380,25, also the lowest price since May 3. On the CBoT, the wheat price fell 6%. That is also the daily limit that is used on this exchange.
The sharp correction in the wheat price is surprising to several analysts. There seems to be no direct reason for such a price movement. The possible opening of the Ukrainian ports on the Black Sea for the export of grain plays an important role in this, according to sources. On Monday, Russian President Vladimir Putin spoke by telephone with Turkish President Tayyip Erdogan. Putin made it clear in that meeting that Russia is ready to facilitate unhindered export of grain from Ukrainian ports. Putin also demands that Western sanctions against Russia be relaxed. On June 8, a Russian delegation led by Foreign Minister Lavrov will visit Turkey to discuss a potential maritime corridor for agricultural products, the Turkish foreign minister said yesterday.
The fact that the Chicago stock exchange reacted quite extreme to this news, according to some experts, has to do with the closing of trading on Monday because of the American holiday Memorial Day. The news from the Black Sea area was therefore able to build up momentum and that came out in one go yesterday. Underlying, not much has changed in the wheat market, experts warn. The EU has just agreed on a boycott on Russian oil and it is unlikely that the West will be willing to lift sanctions as long as the war in Ukraine continues.
Difficult growing season
Wheat growing conditions also remain a major concern. The US Department of Agriculture's Crop Progress report (released yesterday on Memorial Day) ranks 29% of winter wheat in the field as 'good' or 'excellent' and 40% 'poor' or 'very bad' . Last year the ratio was 48% 'good' or 'excellent' and 19% 'poor' or 'very bad'.
Sowing of spring wheat is lagging behind considerably. Only 73% of the planned area has been sown, while the five-year average is 92%. The emergence of spring wheat is also lagging considerably behind. 42% are now above this season, against 69% in the five-year average. In spring wheat-growing states, such as North and South Dakota and Minnosota, spring wheat acreage can be significantly lower due to wet field conditions. Sowing too late in the spring reduces the yield potential and increases the risk for the growers. The chance increases that the wheat will not ripen in time before frost sets in.
Despite the fact that wheat prices are historically high, there is a real chance that farmers will only sow a part of their planned wheat acreage. A part will possibly be filled in with soy that can be sown later. In addition, some of the farmers will call on the weather insurance and leave the wet plots fallow for a year, according to sources. With the sowing of corn and soybean, a considerable amount of catching up has been made in the US. Progress is only 1% behind the five-year average for both crops.