Analysis Grains & Commodities
American wheat market chooses flight forward
In a literal sense, there's been a bit of a chill in the air in America for a while now. This received little attention in the grain market. But as quickly as the weather can change, so can the trade. Europe is pursuing its own agenda in this regard. The demand for corn remains a concern. Relaxing the rules for E15 gasoline could help. Despite lobbying from the agricultural sector, they're unwilling to do so in America.
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Choose the subscription that suits youThe March wheat contract on the Matif closed unchanged yesterday for the second day in a row at €189,50 per tonne. On the CBoT, wheat moved higher last trading session, rising 7¾ cents to $5.15½ per bushel. Corn, however, was a sharper contrast, rising 2¼ cents to $4.24 per bushel. Soybeans moved more sideways, losing half a cent to $10.64 per bushel.
The significant gains in wheat prices on the Chicago stock exchange during the past trading session came as a surprise to several analysts. The slightly weaker dollar contributed in part to this. This makes US wheat more attractive to buyers from outside the US. A more important factor, according to experts, is the approaching cold weather. A snowstorm followed by cold polar winds has been in forecasts for several days. However, players in the wheat market paid little attention to this.
South in the snow
Yesterday afternoon, US time, the National Weather Service issued a warning for a snowstorm and dangerously low temperatures in large parts of the US at the end of this week. The cold weather extends from the northern US to a line between Texas and South Carolina. The cold in the US isn't going away anytime soon. Temperatures are likely to remain below average through February 4th. Some experts are talking about the largest Arctic cold front approaching the southern prairies since February 2021. Because the cold is preceded by snow, this shouldn't pose a problem for winter grains. In places where snow doesn't fall, wintering is a real risk with the temperatures predicted.
In Russia, the winter weather is also becoming a risk. Market agency SovEcon has kept its Russian wheat harvest estimate unchanged at 83,8 million tons. However, the agency warns that if the cold weather persists for another week, the harvest forecast will have to be revised downward. In the area south of Moscow, minimum temperatures of 20 to 25 degrees below zero are being recorded. SovEcon is thus contradicting the USDA's position in the Wasde report earlier this month. The USDA revised its harvest estimate for Russia upward by 2 million tons to 89,5 million tons.
Biofuel
There is dissatisfaction among agricultural interest groups in the US about the lack of year-round sales of E15 gasoline. The House of Representatives voted yesterday on a broad package of new legislation but decided to omit the E15 measures. E15 is gasoline blended with up to 15% ethanol. In the US, this ethanol is largely produced from corn. Increased demand for corn would be more than welcome for American farmers. The Iowa Corn Growers Association estimated that the increased demand for corn for E15 production could increase the price by 94 cents per bushel.
The American Coalition for Ethanol, which unites farmers, small business owners, biofuel producers, and scientists, also issued a critical statement. "As rural America faces one of the toughest economic conditions in a generation, Congress must recognize the gravity of the situation and finally make E15 available year-round. It's a common-sense solution that can immediately boost demand for corn, increase farmer income, and save motorists money at the pump."