Analysis Grains

Smooth US wheat harvest dominate the market

June 19, 2024 - Jurphaas Lugtenburg

The smooth progress of the wheat harvest in the US and the good condition of winter wheat there continues to put pressure on the wheat market. Europe receives little attention. That could change when the combines start harvesting winter wheat in France. Romania is on track for a large wheat harvest, but a profit warning is issued due to the warm and dry weather predicted there. It is also hot and dry in China, not a good start for corn there. The Chinese government has already announced a package of measures to manage the situation.

The September contract for wheat on the Matif closed €1.25 lower at €229 per ton yesterday. Wheat on the CBoT also experienced a downturn, losing 1.6% to close at $5.82 per bushel. Corn and soybeans, on the other hand, saw some gains in the last trading session. Corn rose by 1.4% to $4.50 per bushel. Soybeans also closed 1.4% higher, bringing the closing price to $11.74 per bushel.

The US attracts attention on the wheat market. With 27% harvested according to this week's Crop Progress report, harvesting is going smoothly there. Additionally, wheat in the US is in good condition with 49% rated good or excellent by the USDA. If the weather continues to cooperate for American wheat growers, the wheat harvest in the US could turn out to be larger than previously estimated by some analysts. The subdued sentiment in the wheat market can be explained by this. Of the last fifteen trading sessions, the CBoT closed lower on thirteen days. Analysts believe that the negative trend is further reinforced by technical indicators.

Struggling Europe
There is little attention on the upcoming wheat harvest in Europe. The wet and dark growing season in large parts of Western Europe has tempered expectations for yields. In the largest wheat producer, France, the harvest has yet to begin. If yields disappoint there, it could potentially lead to a market turnaround. The EU cannot rely on exports at the moment. Up to June 16, the EU has exported 29.15 million tons of wheat for the current 2023/24 season. This compares to 30.73 million tons exported in the same period last season.

Market agency Argus has trimmed the top off the harvest forecast for Romania. In the April forecast, Argus estimated the Romanian wheat harvest at 10.6 million tons, which has now been revised down to 10.45 million tons. This would still be the largest harvest ever. The previous record dates back to the 2021/22 season when 10.43 million tons of wheat were harvested in Romania. Argus has issued a profit warning. "Warm weather predicted for the coming weeks will have a negative effect on yields, especially considering the low soil moisture levels." The yield expectation remains unchanged at 4.6 tons per hectare. The smaller harvest is a result of a smaller area than previously expected. Argus also notes a shift towards crops like winter wheat and barley at the expense of corn, which cannot be irrigated due to the pattern of warm and dry summers in recent years.

Emergency Package
Corn is receiving some support from the weather in China. According to some independent weather services, it is hot and dry in northern China - where most corn is grown. In about a quarter of the cultivation area, temperatures have risen to around 37 degrees Celsius. The Chinese government has allocated $61 million for projects to combat the drought.

Brazil is struggling with the tax increase on, among other things, soybean exports. The value of the Brazilian real dropped to 5.4297 per dollar, the lowest level in thirteen months. Brazil introduced export duties to raise additional funds for the state treasury. Soybean importers are turning to other suppliers, resulting in no additional tax revenue to fill the budget gap. This makes currency traders nervous, leading to a declining real. To break the negative spiral, there are now calls within Lula's government to cut government spending. However, whether the export duty on soybeans is also up for discussion remains uncertain.

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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