Analysis Grains

Speculators take profits in the wheat market

May 8, 2024 - Jurphaas Lugtenburg

A correction took place in the wheat market during the last trading session. According to analysts, this was mainly due to traders and speculators taking their profits after the rally earlier this week. Fundamentally, concerns about the weather continue to dominate the market. Players in the soy market are closely monitoring the situation in Brazil. Not only the crops that were still standing have been damaged, but silos have also been flooded. The exact extent of the damage remains difficult to assess.

The May contract for wheat on the Matif closed €5.50 lower at €209.75 per ton yesterday. The September contract lost €2.50 and ended at €242.75 per ton. Wheat also took a step back on the CBoT. The May contract closed 1.2% lower at $6.24¾ per bushel. Corn also closed lower, decreasing by 0.7% to $4.53¾ per bushel. Soybeans moved more sideways and limited the loss to 0.2%, settling at $12.32¼ per bushel.

The correction in the wheat market is largely attributed to traders and speculators taking their profits after the rally earlier this week, according to analysts. The grain market remains volatile, and the weather premium may continue to build up in the coming period, analysts suggest. In the southwest of Russia, it is dry, and there is unlikely to be much change in the next two weeks if the weather forecasts are correct. There may be frost damage later this week as well. In the US, the chance of rain in Kansas is slightly increasing. Together with the slightly better condition of winter wheat, this led to slight price pressure on the Chicago exchange.

More bullish news for wheat came from Canada. Statistics Canada reports that the wheat stock in Canada is 11.8 million tons. Traders had expected a stock of 12.2 million tons.

Falling out of favor
In the Russian grain export market, there are ongoing issues. Six Russian grain exporters are said to not receive export quotas. This information comes from various sources based on a Telegram message from the Russian Grain Union, which quotes documents from the Russian Ministry of Agriculture. Companies such as TD Rif, LDC Vostok, and Cofco are said to have fallen out of favor with the Kremlin. The total volume of export permits is 1.37 million tons, which the Russian Grain Union states has been redistributed to other exporters.

Difficult to assess damage in Brazil
In Brazil, the damage from the extreme rain in the province of Rio Grande do Sul to grains is still difficult to assess, according to the local farmers' union. Between April 29 and now, 150 to over 500 millimeters of rain have fallen in the province. In Restinga Seca, located centrally in Rio Grande do Sul, the rain gauge recorded 540 millimeters. 68 highways are completely or partially impassable due to the flooding.

Due to the massive amounts of rain, rivers in the area have overflowed their banks. These rivers are crucial for the logistics to the seaport of Rio Grande. Along the rivers, there are large grain storage facilities. Paulo Pires, president of the farmers' union Fecoagro, says it is still difficult to estimate how much grain has been lost in the silos. "These are large silos, so the damage is significant, but putting concrete numbers to it is challenging," Pires told Reuters.

Boost for agriculture
Argentina is attempting to boost the agricultural sector. The Argentine Ministry of Economy is removing the import duty on fertilizers. Argentina had a 6% import duty on fertilizers containing ammonium nitrate. According to Ciafa, Argentine farmers used 4.6 million tons of fertilizers in 2023, of which 2.6 million tons were imported. The Milei government also aims to reduce the import duty on herbicides, which currently range from 24% to 35%. "Lowering the tariffs will encourage farmers to use fertilizers and herbicides, increasing crop yields," the ministry stated in the announcement.

Jurphaas Lugtenburg

Jurphaas Lugtenburg is a market specialist in onions, carrots, and commodities such as wheat, corn, and soybeans at DCA Market Intelligence. He combines his degree in business administration with a passion for farming.
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