Why is the wheat price much lower now than in 2022?

The problems with grain exports from the Black Sea region are currently greater than in 2022. Yet the wheat market is reacting clearly differently than after the Russian invasion of Ukraine. At the time, the wheat price in Paris jumped by almost 50% in less than two weeks. Now such a panic reaction is failing to materialize. The grain is there, but it is difficult to get it to the buyer. That was ultimately not materially different in 2022. The big difference seems to lie mainly in market expectations. In 2022, fears dominated that grain from Russia and Ukraine would disappear from the world market for a long time. Now the market is constantly taking into account a diplomatic solution that could get exports moving again. Then the question was: what if the grain does not come? Now it is mainly: when will it still come? The price trend makes that difference clear. On 23 February 2022, a day before the Russian invasion, wheat on the futures market in Paris stood at €287 per tonne. On 7 March, that was €422.50. An increase of more than 47% in less than two weeks. In Chicago, the reaction was even stronger. There, wheat rose in the same period from $8.74½ to $14.25¼ per bushel, an increase of almost 63%. Such a surge is now failing to materialize. The December contract for wheat on Euronext closed on Tuesday at €243.75 per tonne. In Chicago, the December contract lost 9.5 cents and closed at $7.17¼ per bushel. Black Sea exports stallOn the physical side of the market, at first glance there is little reason for that relatively calm reaction. Grain exports from the Black Sea region are severely disrupted. Estimates differ on the exact scale. Kpler expects around 1 million tonnes of Russian wheat exports in September, compared with 5 million tonnes a year ago. SovEcon is less pessimistic. The bureau raised its estimate for September this week from 1.8 to 2.1 million tonnes. Even that is still less than half the level of a year ago. Over a somewhat longer period, the scale of the decline becomes even clearer. SovEcon expects Russia to export 5.4 million tonnes of wheat in July, August and September combined. That is 53% less than the 11.5 million tonnes of last year and 58% less than the five-year average. Ukraine is expected to reach 2.6 million tonnes. Together, the two countries will therefore export about 8 million tonnes of wheat this quarter, the smallest volume for this period since the 2010/11 season. There is no shortage of Russian wheat. The harvest is large, but the problem lies in transport. Shipping from the Sea of Azov came to a halt in mid-July and capacity via the Black Sea is also heavily limited. Russia is therefore trying to move more grain via the Baltic Sea, among other routes. That offsets part of the shortfall, but cannot fully replace normal capacity in the south. Ukrainian exporters are also seeking alternatives. As a result, pressure on the Romanian port of Constanța, for example, is increasing. Handling at the border now takes five to seven days, compared with two to three days normally. Buyers wait and see The problems are becoming noticeable for major importers. Indonesia has received about 60,000 tonnes of wheat from the Black Sea region this month so far, compared with half a million tonnes in the same period last year. Alternative wheat from Australia is 20% to 25% more expensive than earlier purchases from the Black Sea region, according to traders. Egypt is also receiving less wheat from Russia and Ukraine. For September and October, less than a tenth of last year’s volume is scheduled. In the first half of September, Egypt imported 143,870 tonnes of wheat, compared with 876,139 tonnes a year earlier. Buyers are therefore paying more attention to France and other European suppliers, among others. Even so, this has not yet led to a run on European or American wheat. Many buyers are postponing purchases as long as possible. In doing so, they are counting on an improvement in the situation around the Black Sea. If exports get moving again, a considerable amount of Russian and Ukrainian wheat could relatively quickly appear on the world market. Supply has not disappeared That explains to an important extent why the futures market reacts so strongly to every signal about diplomacy. After all, supply has not disappeared. Moreover, the outlook for global wheat stocks has become more comfortable. Global ending stocks are estimated at 276.3 million tonnes, partly thanks to better harvests in Argentina, Australia and Canada. As a result, the physical market and the futures market continue to send different signals. On the physical market, the consequences of the problems around the Black Sea are becoming increasingly clear. At the same time, the futures market is often dominated by the expectation that those problems can eventually be resolved. The longer the export problems continue, the more pressure the physical market comes under. Importers can delay purchases, but not indefinitely. As stocks at mills and importers shrink, the need to buy wheat elsewhere increases. That could boost demand for European wheat. Corn much stronger in ParisFor corn, the tension in the European market is meanwhile more clearly visible in the price. The November contract on Euronext jumped by €7.25 and closed at €276 per tonne. That means the European corn market is moving strikingly differently from Chicago. There, the December contract lost 6.25 cents and closed at $5.36¾ per bushel. That difference is mainly due to European availability. The EU needs a lot of corn from outside the bloc, and supply from Ukraine in particular is being hampered by logistical problems. At the border with Poland and Romania, waiting times for rail transport can rise to two to three weeks. The EU imported 4.47 million tonnes of corn up to 20 September. That is 27% more than a year earlier. Notably, the United States is now the largest supplier with 1.86 million tonnes. Ukraine follows with 1.40 million tonnes and Brazil with 976,000 tonnes. In the United States, the situation is different. The harvest is getting underway there, which brings seasonal supply to the market. According to the USDA, 13% of the corn crop had been harvested earlier this week, compared with an average of 11% around this time. The US market is therefore facing harvest pressure at a moment when Europe is precisely looking for additional imported corn. South America increases supply prospects Increasing supply also plays an important role for soybeans. In the United States, 12% of soybeans had been harvested, compared with an average of 8%. The harvest is therefore ahead of the multi-year average. At the same time, the market is already looking to South America. In the Brazilian state of Paraná, about 15% of soybeans had been planted by mid-September. Rain has improved conditions for planting. A smooth start to soybean cultivation is moreover favorable for the second corn crop, because it can then go into the ground on time next year. Argentina can also provide more supply. The Buenos Aires Grains Exchange currently expects soybean production of 53.6 million tonnes in 2026/27 and a corn crop of 66 million tonnes. The estimates differ considerably between organizations, however. The Rosario Grain Exchange, for example, comes out clearly lower for soybeans and higher for corn.