Expensive oil and drought are driving up the price of wheat.

The May wheat contract on the Matif closed €3,25 higher yesterday at €209,25 per ton. Grains also closed in the green on the CBoT. Wheat rose 3 cents to $5.92 per bushel. Corn closed 4 cents higher at $4.48 per bushel. Soybeans were the biggest gainer on the Chicago exchange, rising 12 cents to $12.13 per bushel.

The unrest in the Middle East is keeping players in the commodity markets busy. The most striking movements are, of course, the oil prices. Brent crude rose yesterday to well over $100 per barrel. The Iranian attacks on cargo ships attempting to sail through the Strait of Hormuz are the direct cause of this.

The Iranian Revolutionary Guard even warned that the market should brace itself for $200 oil. The International Energy Agency (IEA) spoke yesterday of the biggest disruption to the oil market in the history of the global market. This occurred after it was announced earlier that 400 million barrels of oil from strategic reserves are being released onto the market to temper the rising oil price.

Different tone

Earlier this week, the American president seemed to be pushing for a quick end to US military actions in Iran. This morning, Trump posted a message with a different tone via his Truth Social platform. "We possess unparalleled firepower, unlimited ammunition, and sufficient time." With this, the president signals that the conflict could drag on for a considerable time.

According to analysts, the rising oil price is supporting the grain market. At the same time, there are developments within the grain market itself that are pushing attention to ample global stocks into the background.

Drought in the Black Sea region

It is becoming drier in the Black Sea region. After a cold winter, in which winter wheat in parts of Ukraine and Russia already suffered damage, a dry spring comes at an inopportune time. European weather maps show that little to no rain is expected in key grain regions of Russia and Ukraine for the coming week.

Rusagrotrans forecasts wheat exports for Russia in March of 3,7 million tonnes. That is nearly double the 2 million tonnes exported this month last year and also well above the five-year average, which stands at 2,9 million tonnes.

Rusagrotrans writes nothing about the export of wheat via the Caspian Sea. That body of water between Russia and Iran, among others, is not as important for Russian grain exports as the Black Sea, but the unrest in Iran could indeed affect this route and, consequently, Russian grain exports.

Warm and dry
The weather in the Black Sea region is not the only factor in the grain market. It is also dry in the US. Last week, 56% of winter wheat was affected by drought. That has dropped slightly to 55% this week. However, the weather reports for the southern prairies are not very encouraging.

Rain is not on the way, and temperatures are rising to levels well above average. As a result, the soil's moisture reserves are being depleted, according to experts. However, it is not all doom and gloom. Rain is actually forecast for a broad swathe across the eastern US.

Meanwhile, a different issue is at play in the soybean market. New customs procedures by China are causing uncertainty in trade. As a result, Cargill has temporarily suspended the export of Brazilian soybeans to China.

In the United States, this fuels hopes that China will buy more North American soybeans in the short term. A meeting between US President Trump and Chinese President Xi Jinping is scheduled for later this month.

An additional purchase of soybeans could be a diplomatic gesture toward Washington. At the same time, American soybeans from the Gulf region are about $1 per bushel more expensive than Brazilian soybeans. With a price difference of about 10%, a shift toward the more expensive American soybeans is not immediately obvious.