Wheat: a good harvest and increased competition drives down prices
Chicago-listed Soft Red Winter Wheat futures contract fell to its lowest level since September 2021.
Wheat prices fell on world markets reassured by good Russian and Australian harvests and where competition was in full swing, ignoring the frenzy of war in Ukraine.
Benchmark Soft Red Winter Wheat futures contract, which is listed on Chicago, fell Tuesday to its lowest level since September 2021 in more than 27 months.
On European markets, cereals fell in the session below 290 euros a tonne on Euronext on Wednesday, erasing nearly ten months of fluctuations linked to Russia’s invasion of Ukraine.
“Prices fell in the United States and Europe because of Russia, India and Australia,” said Michael Zuzolo, president of Global Commodity Analytics and Consulting.
The world’s leading exporter, Russia is selling its excellent crops at a good pace – having just won a new Egyptian tender. The large export quotas set by the Russian government are not a hindrance to sales, unlike infrastructure and weather, underlines Andrey Sizov, of the Russian company SovEcon.
Therefore, Mr. Sizov expects “historically high” Russian exports, even though the cost of sea transportation is increasing due to higher insurance premiums for the Black Sea again.
After Russia, Australia is expecting a record harvest (about 40 million tonnes) and India is quite optimistic about future harvests, benefiting from the favorable climatic conditions of growing cultivated areas.
Some analysts expect a review in March of the wheat export embargo imposed last May by New Delhi after a devastating heat wave. India has since honored signed contracts and intergovernmental agreements, but with very low sales.
“Too much grain”
The American market integrates the idea that India and Australia “can practice low enough prices to capture most of the export market”, according to Michael Zuzolo.
“There is too much wheat in the world today. And we can’t export outside of the United States. Until that change occurs, wheat will remain under pressure,” said Jon Scheve of consulting firm Superior Feed Ingredients.
The decline in cereal prices was general, but for wheat it was emphasized in Europe because of the euro-dollar parity. “The euro is rising and this is leading to readjustment to remain competitive, particularly in European markets in the face of stiff competition from Russian wheat,” notes Gautier Le Molgat, from Agritel.
“There is some kind of consensus for prices to fall,” agrees Damien Vercambre, of firm Inter-Courtage, referring to both the ongoing and upcoming harvests, and inflation which is limiting demand, especially in Europe. .
In this context, geopolitical anxieties related to Ukraine and potential supply crises have dissipated, he underlined: “We see that the maritime corridor (on Ukrainian exports) is functioning” and has allowed nearly 17 million tonnes of grain to be excreted. from Ukraine since August 1, according to the latest report from the Joint Coordination Center responsible for inspecting the ship.
After wheat, corn fell on Euronext, remaining indecisive in the United States, reflecting still cautious demand – pending a rebound in Chinese consumption, after the ongoing big Covid wave has passed.
Soybeans are doing well, with prices high in Chicago due to the uncertain climate in Brazil, where the south needs rain for crop growth and the north must not flood to maintain good quality.
“If anything happens to this harvest, the world will panic. But if conditions are good across Brazil, soybeans may be overvalued” today, said Jon Scheve.
For Jake Henley of Teucrium Trading, wheat, corn and soybean prices could even “close to production costs in the coming months” but remain high, due to energy spikes.