Russia is the price fighter on the wheat market

The March contract for wheat on the Matif once again fell sharply yesterday. The price fell by €6 to close at €281 per tonne. Wheat also took a hit on the CBoT, falling 1,9% to $7.36½ per bushel. In both Paris and Chicago, wheat prices fell to the lowest point in a month. Corn and soy also suffered losses during the last trading session, but losses of 1% and 0,6% respectively were smaller than in wheat.

The fierce competition with wheat from Russia is seen by analysts as one of the main causes for the negative mood on the wheat market. The market was reminded of this again yesterday by an Egyptian tender. The Egyptian state purchasing agency GASC bought 240.000 Russian wheat in a tender yesterday. The best bid for the tender came from Russia at $317,50 per tonne C&F (delivered free). The highest tender was for French wheat at $341,90 per tonne C&F.

Whether or not to extend the grain deal between Russia and Ukraine remains a sensitive issue that causes a lot of uncertainty on the grain market. The current deal expires on March 18 and should be extended before then to keep Ukraine's Black Sea ports open for grain exports. Trade is trending towards an extension being likely, despite Russian reluctance. Yesterday, Ukraine's package of demands for the continuation of the grain deal was released. A top Ukrainian official has informed Turkey and the UN - which are independent parties supervising the grain deal - that Ukraine is aiming for an extension of the deal for at least a year. Ukraine also wants the port of Mykolaiv to be opened for grain exports under the deal. According to the Ukrainian Ministry of Agriculture, there are still at least 30 million tons of grain in the silos ready to be exported. Before the Russian invasion, about 35% of Ukraine's grain exports passed through the port of Mykolaiv. Furthermore, Ukraine is critical of the slow inspections of the ships. The UN, Turkey and Ukraine can easily scale up, but Russia only has three teams for inspections and does not want to send additional teams to inspect more ships. As a result, approximately 140 ships are waiting for inspection.

Buyers wait and see
Due to the relatively high grain prices, major wheat buyers from Asia, the Middle East and Africa are reluctant to buy, traders and analysts warn. Normally, major buyers such as mills and feed manufacturers fix wheat prices for consumption over the next six months or so. Now these players do not want to commit more than two or three months' consumption. The downward trend in the market further reinforces this. Why buy now if there is a good chance that the price will be lower in a month? There is a risk to that. The market has certainly proven to be very volatile in the past year. Due to large harvests in Russia and Australia, the fear of acute shortages has subsided somewhat. Whether it will remain that way is far from certain. Consider, for example, drought in the American wheat belt and this week extreme heat in India, one of the largest wheat producers in the world.

Due to the relatively limited quantity that is fixed, the price towards end users becomes more sensitive to fluctuations. After all, the processors have less stock on which to rely and if the wheat quotation is at a high point, they do not have the luxury of, for example, postponing the purchase for another month. This can pose problems, especially in poorer countries where food consumes a large part of consumers' disposable income. If prices suddenly rise, people can no longer meet their daily needs. Countries such as Egypt, South Korea, Turkey and India are mentioned as sensitive. It is striking that China is also mentioned in this list. According to USDA inventory figures, China holds about half of the world's wheat supply. With such a large stock, it should not be complicated to bring wheat from the intervention stock onto the market to cap price spikes. Analysts often doubt the actual stock in China.