What price trends are emerging on the wheat market?
When we look at the twelve months of the campaign, we are on an average quite close to last year but higher than what we have experienced over the last ten years: we were around €210/t on average and we is today around 225 €/t. I am rather bullish on the price of wheatfor several reasons.
We focus a lot on the offer, but it is ultimately more or less established, at least in the first part of the campaign with what is available in the northern hemisphere. The southern hemisphere will arrive in the second part of the campaign, with lots of things that can happen, particularly in terms of weather, geopolitics, etc.
What we don’t talk about much is demand. It seems to me that it is completely underestimated in the various assessments, we even have assessments where we are reducing the global use of wheat, others where we are making progress but quite timidly. However, there are plenty of reasons to say thatwe underestimate this demand.
The first is that we have a increase in population : as there are approximately 80 million more people each year, we still need 8 to 10 Mt of additional wheat per year. So when someone tells me that we are going to decrease by 3 Mt or only increase by 5 Mt, that seems a bit fair to me.
Beyond this demographic increase, what elements argue for an increase in demand?
We also have variation in food uses: we often switch from rice to wheat. And there is a shortage of rice on the world marketand it’s getting worse. We cannot generally say that we are going to reduce the consumption of rice and that we are also going to reduce that of wheat: at some point, we still have to feed people!
Third thing: one ton in five of wheat in the world is intended for animal feed. However, it continues to make strong progress around the world. For example, we have countries like Indonesia, a major importer, which uses a lot of wheat to feed its chickens. The limit of the exercise is the possibility that epizootics will reduce demand at the global level.
What we also tend to forget is that the big importing countries are countries that buy on credit. There, they were relatively limited in their purchases because interest rates were very high. But we enter a cycle of drop in rates. This means that it will reduce the debt burden for a certain number of countries.
This drop in rates will undoubtedly cause the dollar to fall. And when we lower the exchange rate of the dollar with other currencies, quite mechanically it raises dollar prices on the Chicago market.
In terms of demand, many other elements come into play, particularly on the part animal feed : the price ratio between wheat and corn is very important to observe. At the global level, for the moment it is not so much in favor of wheat, but we know that we have a lot of wheat of not very good quality: it will have to find an outlet in animal feed.
What about the global offer?
Important thing about the offer: we know that in the first part of the campaign, it is the northern hemisphere which arrives at the market. We know that between the decline (in production) in Russia, Ukraine and the European Union, and the rise in the United States and Canada, we will lose around 11 Mt.
What we don’t know very well and what we really need to look at is the timing, that is to say the speed at which Russia, and even Ukraine, put their availabilities on the market. However, it goes very quickly: in two months, both countries exceeded their targets by 20%it’s huge.
We can have two campaigns with the same average price, but the kinetics will not at all be the same as in 2023/24.
I think we are going to be much closer to what happened in 2021/22: we had a relatively low start to the campaign, and then we started to progress, and then after we had an acceleration of the increase prices on the second part of campaign. I could quite clearly see the cereal campaign taking shape in this form.
What about the French market?
If we only look at France, we can imagine that we are in a somewhat bullish market, since we have a drop in the harvest. But we must not forget that we had an increase in carryover stocks, in particular because the prices were not profitable for farmers and they kept a lot of goods at the end of the campaign.
The question that arises is: “do we wait a little, Are we banking on an increase in prices? on the second part of the campaign, and can we keep our wheat a little more knowing that we have a little more space, or not? “.
You should know that corn will also arrive, even if it is a little late. And for corn we are generally on a rather very decent French market and which will be a little tighter at the global level, but in any case not at the start of the campaign. There is always this competition between wheat and corn which is important to follow.
On wheat, in France we have qualities which are not very good and which will force the storage organizations to do a lot of work in allotment, mixing, etc. It costs money.
We can also understand that we expect a slightly more profitable price, so we are followers. We have a eurodollar parity which does not help us much. I think a lot can change after the US elections, including in terms of exchange rates. We can play for time.