Things are getting hot in the atmosphere this week and the wheat market is also being affected. Futures markets are recovering rapidly after a dip last week. Good export figures for the EU support the mood. Now that the wheat harvest has started, what can we expect from the price formation?
In brief:
On Thursday and Friday, international grain markets recovered strongly. This was especially the case for wheat. Monday 11 July, that line will continue. The September contract on the Matif registers a plus of about €2,50 to €4,50 on Monday afternoon, bringing the wheat price to €359,50 to €361,50 per tonne. On the CBoT, contracts are up more than 1% with $8,88 per bushel for the July contract and $9 per bushel for the September contract.
High demand for European wheat
At the start of the new export season, European countries are doing good business, but whether that bodes well for the entire season, market analysts are not so sure. For now, it looks like Europe is filling in the gaps that Ukraine must leave behind in the global market. For example, Egypt bought wheat in Germany – outside of a tender round – and that is special. More African countries are reported to have bought large volumes of wheat from Germany. In total more than 1 million tons. France, meanwhile, is supplying more wheat to Algeria and Morocco now that these two countries cannot easily receive product from the Black Sea region.
The situation in the Black Sea region is special, especially in Russia. The country is heading for a record crop of wheat. Normally enough news to push the market price down considerably. This season, the export potential is the big question mark on which no consensus has yet been reached in the market. Russian wheat is attractive to buyers. This is also evident in last week's latest GASC tender. The Egyptian state agency bought mainly Russian wheat for €413 per tonne FOB. That is for September and October delivery. France also did good business.
Russian price continues to fall
The GASC price is $16 per tonne below the level of the previous tender. What is helping the Russians is a falling ruble exchange rate and a reduction in the export tax on wheat. It was $146 per tonne and has now fallen to $84 per tonne. According to the Russian market agency IKAR, the price level is now at $358 per tonne of FOB in the country. Down $17 from a week earlier. The first 100.000 hectares of wheat in the country have now been harvested, which is increasing the pressure on prices. The country exported 340.000 tons of grains last week and 250.000 tons and 500.000 tons in the weeks before.
In the first seven days of July, Ukraine has meanwhile exported 30% less grain this season, the agriculture ministry announced on Monday. It concerns 402.000 tons.
The first yield indications for the south of Europe are negative and that is also included in the market. With persistently dry and warm to very warm weather ahead, the wheat market is heating up. The American listing also takes this into account. The wheat harvest in France started early and is progressing very smoothly due to the dry weather. Analysts expect a better yield in the north of the country. It should also be better elsewhere in Northwestern Europe.
Mixed messages US wheat
In the US, the winter wheat harvest is in full swing. In the southern states of Texas and Oklahoma, wheat combining is nearly complete and harvesting is shifting north to the south of the Plains. The first indications for winter wheat yields there are negative. About 1,34 to 2 tons per hectare for hard red winter wheat (HRW). This is reported by the US Wheat Association, which reports weekly on harvest progress, yield and quality. Yields are much better in other states. Especially where calculations can be made. Around 6,72 tons per hectare are harvested there (100 bushels per acre). Those are excellent returns. In South Dakota, where the harvest starts in a week, winter grains are damaged by storms and hailstorms. Significant precipitation, in combination with high temperatures, does improve the situation for summer cereals. This is reflected in the crop rating.
Conclusion: special market development
All in all, the wheat market continues to develop very unusually. While historically there has always been harvest pressure in July and August – and with it falling prices – price formation has nevertheless recovered considerably. In part, there is a technical correction because the level fell too hard last week, according to analysts. The market is now looking for a new balance. A combination of drought and good exports mean that Europe is looking upwards again. The last seven trading days show that the market bottom is at $325 per tonne and the ceiling for now is likely around $375. For an arable farmer, these are excellent prices that can be called very high from a historical perspective.
It also offers longer-term opportunities as the September 2023 contract is trading above $300 again. The December contract is also above this level. The first choices for the 2022/2023 season must already be made now. Think of purchasing fertilizer and seed. A wheat price above €300 creates an important floor in the market against which other crops have to measure themselves. Especially for sugar beet and commercial crops, that will be quite a challenge.