The developments surrounding the war in Ukraine continue to have a major impact on the wheat market in particular. Wheat prices rose in both Europe and America due to uncertainty regarding the supply of wheat from the Black Sea region. Although snowed in, there are also factors in the market that have a depressing effect on prices.
The December wheat contract closed yesterday on the Matif at €347 per tonne. That is an increase of €7,75 compared to the day before. On the CBoT, the increase was relatively limited last trading session after the sharp jump earlier this week. The December wheat contract closed 1,1% lower at $9.03,75 per bushel. Soy and corn delivered some in the last trading session on the CBoT.
Yesterday the market struggled to appreciate the latest developments surrounding the war in Ukraine. First there was the announcement of referendums in the occupied eastern provinces in Ukraine and Putin followed that up yesterday with a partial mobilization in Russia. This makes the export of wheat from the Black Sea region more difficult. Although exports do not immediately come to a standstill, the unrest on the market is further fueled. The trade is building in a risk premium in case things threaten to go wrong further in the Black Sea region.
Expensive dollars
Although the mood is overwhelming bullish In the wheat market there are also a few factors that have a price dampening effect on the market. Yesterday the Fed announced it would raise interest rates by 75 basis points. The US central bank is forced to do this to get inflation under control. This makes borrowing money more expensive and puts a brake on economic growth. The demand for raw materials, including grains, may therefore be lower in the longer term. The rising dollar exchange rate is an additional obstacle for American exporters. The expensive dollar works to the advantage of European exporters.
Market agency Safras & Mercado yesterday revised the harvest forecast for wheat in Brazil upwards to 10,935 million tons. The previous estimate was 10,5 million tons. In the 2021 season, Brazil harvested 7,745 million tons of wheat. In short, the wheat harvest this season is forecast to be 41,2% higher. Brazil is a net importer of wheat, but major steps are being taken to expand wheat cultivation. The government predicts that the country will become self-sufficient in wheat requirements within ten years. With new varieties that are resistant to the tropical climate, Brazilian farmers also have the opportunity to sow more wheat. A large part of the wheat that Brazil imports comes from neighboring Argentina. The growing season there is less favorable. Due to persistent drought, the Rosario grain exchange has lowered its yield forecast for wheat and corn in the main growing regions.