Drought in the US strengthens grip on the wheat market

The May wheat contract on the Matif closed unchanged yesterday at €194 per ton. The first new crop contract, the September contract, rose €1,25 to €205,75 per ton. On the CBoT, wheat is approaching $6 again and rose by 4 cents to $5.98 per bushel. Corn fell by 2 cents to $4.48 per bushel. Soybeans also closed in the red, down 3 cents to $11.63 per bushel.

The weather, and particularly the drought on the prairies in the central United States, was the main flavor driver on the wheat market during the last trading session. The July wheat contract on the Kansas futures market even closed 17¼ cents higher at $6.55 per bushel, the highest level in thirteen months.

Looking at the map from the latest drought monitor, it is understandable that wheat saw a jump specifically in Kansas. Most wheat is grown in the western half of that state; and it just so happens that the west was missed by the rain of this past weekend. Last autumn, 62% of winter wheat in Kansas was in good or excellent condition according to the USDA. That has dropped to 32% in the Crop Progress report from earlier this week. South of Kansas, in that other major wheat state Oklahoma, it is also dry, as well as in Nebraska and the Pacific Northwest.

As a result, the USDA could very well be forced to revise its yield estimates for the wheat harvest downwards. The risk of a smaller harvest weighs more heavily for the trade than the somewhat disappointing US exports for the week. Net sales of 100.000 tonnes for the first week of April (the latest figure from the USDA) are 39% lower than the previous week. Over the entire season, the US has already exported 99,5% of the USDA's estimate. For the remainder of the season, weekly exports of 6.000 tonnes are sufficient to meet the USDA's forecast.

There is, however, demand for wheat on the world market. Algeria has secured 400.000 tons of durum wheat in a tender, according to various sources. Prices in the tender range from $322 to $334 per ton C&F (delivered on board). Algeria's previous major purchase of durum wheat was in December, when approximately $315 per ton was paid.

Good wheat year so far 
LSEG has raised the estimate for the wheat harvest in the EU plus the UK by 0,5% to 147,9 million tonnes. The soft wheat harvest in the EU is estimated at 127,4 million tonnes. The fact that the harvest forecast has been adjusted slightly upwards is due to the relatively favorable weather, LSEG writes. As a result, the wheat in Germany, France, and Bulgaria is looking even better than in the previous forecast. On average, temperatures were around or slightly above the long-term average, but rainfall was below average. In some parts of Central Europe, there is little moisture left in the soil. We must keep a close eye on growth there, according to LSEG. In France, the wheat is looking good. In the latest update from FranceAgriMer, 84% of the acreage receives a rating of good or excellent, compared to 75% this week last year.

The maize acreage in France will be 10% to 15% lower. At least, that is the prediction of the French maize growers' association AGPM and the research institute Arvalis. The decline is partly due to a larger acreage of winter grain sown because of the relatively favorable weather last autumn. However, the biggest blow to maize is the high cost of fertilizer that growers are facing due to the war in Iran. Sunflowers are the main alternative to maize. There are also reports that part of the land will be left fallow. High cultivation costs and lagging grain prices are putting significant financial pressure on growers. Leaving some extra land fallow, combined with a subsidy scheme, may well be the most economically responsible option according to some experts.