Wheat quotes on the international grain exchanges were under heavy pressure in the last trading session. Analysts point to harvest progress in the Northern Hemisphere as the cause. That gives relief in a tight wheat market.
On the Matif, the September contract fell to €372,50 per tonne. That is €15,75, or 4% lower than the day before and the lowest price since the beginning of April. On the CBoT the decline was even sharper. The July contract fell 5,7% to $9.75,25 per bushel. That is the lowest price since March.
The sharp decline in wheat prices comes as a surprise to many analysts. It is not surprising in itself that wheat prices fluctuate around the harvest. According to experts, there is no direct reason for a significant decline in one day. Yesterday afternoon (June 21) the USDA's Crop Progress report was released. That report gave little cause for a shock in the wheat market. In the US, 25% of winter wheat has been harvested. That is slightly above the expectations of market analysts, who expected 23% and higher than the five-year average of 22%. The condition of the winter wheat still on the land has changed little: 30% of the area is given the status of good or excellent and 42% of the wheat is in poor or very poor condition.
Russia is heading for a top harvest
Russia is heading for a record harvest of 89,2 million tons according to market agency Sovecon. A first indication of winter wheat yield is usually winter barley, which is harvested a few weeks before wheat. In the Russian region of Krasnodar, the hectare yield of winter barley is 119% higher than last year. According to local authorities, the average yield is 7,38 tons per hectare. Discussions about a corridor for the transport of grain from Ukraine are also playing a role in the background, but many doubt that there will be a quick breakthrough. All in all, the news from Russia is food for the bear in the market.
A strong price movement can sometimes have a strong attraction for speculators. If the price breaks through the resistance level - as happened yesterday on both the Matif and the CBoT - there are speculators who expect that decline to continue in the short term (hours or perhaps even days). To profit from this, they open short positions. This provides the downward spiral. Given the recovery today - the Matif has already broken through the €380 mark and the CBoT the $10.00 mark - yesterday's reaction seems exaggerated. That doesn't mean there won't be another correction coming down. The yield data that will be released in the near future will have a strong influence on the direction the market will choose in the near future.