Ukraine: wheat prices still under pressure

Ukraine: wheat prices still under pressure

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“Fear of seeing demand drop”, fear of not finding any solution to evacuate stocks from Ukraine: cereal prices have fluctuated in recent days according to financial and geopolitical factors, while waiting for more good harvests in the northern hemisphere. 

“Everything is linked to the fear of seeing demand fall, to the recession, to the policy of the American Federal Reserve”, whose interest rate hikes could further slow down demand, “but very little of what concerns the 'supply and the weather is taken into account,' summarizes Michael Zuzolo, president of the brokerage and analysis company Global Commodity Analytics and Consulting.

Wheat prices hesitated on Wednesday on the European market after a net reflux the day before.

Ukraine: the wheat prices still under pressure

Ukraine: wheat prices still under pressure

“We feel the market very nervous, with high amplitudes in session prices, and a general trend that remains downward,” comments Gautier Le Molgat, analyst at Agritel, stressing that the ton of soft wheat , around 340 euros (445 dollars) for delivery in September, has lost nearly 100 euros (131 dollars) in two months on Euronext.

“A lot of commodity funds buy a wide range and when they sell it affects the whole market,” from oil to metals to agricultural commodities, says Jake Hanley of Teucrium Trading.

< p>These “external influences” are weighing on grains, while in the opinion of several analysts, agricultural fundamentals (crop condition, weather) have not changed as quickly as prices in recent weeks.

In its monthly report published on Tuesday, the United States Department of Agriculture (USDA) predicts a reduction in global wheat supplies – mainly due to drought in Western Europe and lower harvests in Ukraine – and revises downwards its consumption forecasts. 

It also reduces the forecasts for Chinese soybean imports, under the combined effect of the health and economic crises.

Ukraine: wheat prices still under pressure

Ukraine: wheat prices still under pressure

This “has fueled this idea of ​​demand destruction”, for Michael Zuzolo, who however expects a rebalancing by the end of the month, where the market will once again focus on harvests.

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A competitive market

A positive sign for the competitiveness of North American cereals, while the euro-dollar parity favors European supply: the upward revision of American and Canadian wheat exports.

For Arlan Suderman, the brokerage platform StoneX, “the upside factors that remain are tight stocks for corn, soybeans and wheat. The problems are still there”, but “the market no longer takes this risk into account”.

The economist mentions in particular the meteorological risks – excessive heat that could harm corn on the American Corn Belt, but also in the European plains – and the still great uncertainty on the Ukrainian front.

“The market is very skeptical about the likelihood of seeing secure maritime corridors set up for Ukrainian exports, he notes, as a new round of talks started on Wednesday in Istanbul, bringing together Russians, Ukrainians and the UN .

An agreement would allow Ukraine to evacuate some 20 million tonnes of products (cereals, sunflower) from the old harvest and start storing the new one, and a more massive resumption of traffic in the Black Sea would allow Russia, whose wheat harvest promises to be colossal, to secure its own exports.

The USDA envisages Russian wheat production of 81.5 million tonnes in 2022-23, an estimate considered too cautious by Agritel and other analysts, who are counting on 86 to 88 million tonnes, of which more than 40 million for export.

On Euronext, around 2:00 p.m. GMT (10:00 a.m. in Montreal) Wednesday, wheat tender sold at 341.25 euros (446 dollars) per ton for delivery in September and maize at 321 euros (420 dollars) for August. Rapeseed was trading at 663.5 euros (867 dollars) for August.

On the Chicago Stock Exchange, shortly after the opening, the price of wheat of the SRW variety was quoted at 8.23 ​​dollars a bushel and maize $6.0725 for September deliveries. Soybeans were trading at $14.7575 for the August expiry.