Solid price recovery kicks off the week for wheat market

The wheat market is showing a solid recovery. On the US futures market in Chicago and on the Matif in Paris, prices rose at the start of this week. The reason is renewed hope for additional Chinese demand for US agricultural products, combined with ongoing drought in the United States. As a result, risk premiums are returning to the market. In Paris, the September milling wheat contract rose to €213.25 per tonne, a gain of 1.7% in one day. That has largely erased last week’s losses. The European market followed the rise in Chicago, where wheat contracts closed more than 4% higher. The market reacted mainly to the White House announcement that China has committed to buying at least $17 billion in additional US agricultural products annually over the next three years. It is not yet clear which products this includes, but the market assumes that, in addition to soy, wheat, corn and sorghum could also be part of it. That expectation is creating optimism. If Chinese state-owned companies resume active purchases of US grains, this could support export demand in the US. At the same time, traders see that this extra demand is unlikely to lead to higher global grain consumption, but mainly to a shift in trade flows. That means China may buy less wheat from Europe, Australia or Canada and more from the United States. For Europe, this works both ways: higher global prices support the Matif, while export opportunities to China may decline. Worst wheat in thirty years Besides China, the weather in the United States remains a dominant factor. US winter wheat is suffering heavily from drought in the Plains. Only 27% of winter wheat is rated good or excellent, which is historically low. In addition, more than 70% of winter wheat areas are dealing with moderate to severe drought. That puts the crop in its worst condition in thirty years. Rain is expected, but according to analysts it will probably come too late to significantly improve yields. This is fueling concerns about US production and supporting prices. The situation in the US has led to a striking development:. US buyers have purchased large volumes of Polish milling wheat in recent weeks. This is because domestic US prices are higher than European export prices. Wheat from Poland and the Baltic region is therefore competitive for US flour mills on the east coast. The fact that the US is temporarily importing wheat underlines how tight the US market is. In Europe, the outlook is currently less concerning. The European crop monitor Mars has slightly lowered yield expectations for soft wheat due to drought in parts of Central and Eastern Europe, but the overall crop condition remains reasonably good. France in particular is looking favorable and recent rain has brought relief in the Baltic states. European yields, with an estimate of an average of 6 tonnes per hectare, are still slightly above the five-year average. That prevents the European market from rising sharply.