Why are wheat prices rising?

In brokerage rooms and on supermarket shelves, wheat prices are rising, they can already be seen in receipts. The price of common wheat reached its peak on Monday, May 16, to close at 438.25 euros per ton, before starting to decline to settle on Thursday at the close at 422.25 euros. But what is the reason for this “wind of madness” in the markets?

the situation “Unpublished”, notes Nathan Cordier, analyst at Agritel Consulting and agricultural market analysis. Poor economic conditions have accumulated in recent weeks on the global production front. And the current difficulties are part of an already tense context, inherited from the previous season. On the other hand, harvests in North America were very poor in 2021, although it is one of the main export areas – the United States in 2020 provided almost 10% of the recorded flows. On the other hand, demand has increased under the pressure of rising global demographics.

The market reacts to this balance of power between supply and demand for wheat, and the first is ‘It is clearly not enough’ Compared to the second, the analyst explains. a ‘chain of disasters’And Since the outbreak of the Russian invasion of Ukraine in February, it has further reduced global production. In addition to the war in Eastern Europe, there was around the same time an Indian ban on wheat exports and an early drought in France, which already threatened the crops.

Since the beginning of the war, the world market had to dispense with the production of Ukraine and Russia

The war in Ukraine is the first event of the year to shake the wheat market. Representing Russia and Ukraine together “More than a third of global flows” of these grains over the course of a soft year, and “Up to 60% during the period from July to October”, Nathan Cordier resides. However, Russian production is no longer participating in the world market since Vladimir Putin decided to restrict exports, at least temporarily, in order to control consumer prices in his country.

Ukraine, for its part, faces a double problem. First, there is a huge risk hanging over wheat production since then “About a third of its land area of ​​winter wheat is located in the east of the country.”, the epicenter of the fighting between Russian and Ukrainian forces, says analyst Agritel. At the satellite level, the difference from the usual seasons is already visible, according to images recorded between April 14 and 22 by a NASA satellite and Analyzed by the geographical analysis company Kayrros.

The specialist in satellite imagery and geolocation applied to the environment performed a precise infrared analysis to assess the condition of the plants and thus predict grain production. At this point, Ukraine will be able to produce 21 million tons of wheat in 2022, which is 12 million tons less than in 2021, Kayrros estimates, a 35% drop in harvest yield compared to last year.

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On the other hand, producers who were nevertheless able to grow and harvest their wheat would not be able to export it as optimally as before. While almost 95% of exports were carried out by sea, the Russian Navy, from the first hours of the conflict, crossed the Black Sea, closed Ukrainian ports, bombed the port cities of Mariupol and Mykolaiv, threatened Odessa and mined all sea ports. .

Railways and roads will only be able to make up for minimal cargo departures by boat, amounting to about 1.5 million tons of product, the analyst estimates, out of the usual 6 million.

In India, the world’s second largest exporter, a ban on wheat exports

Faced with such a supply shock, analysts have been betting on large Indian wheat production to make up for shortfalls in Ukraine and Russia. Although the country, the world’s second largest producer, is not historically an exporter – India is content to export surplus production after domestic consumption – the potential for a good harvest and world prices above national prices have prompted traders to sell in the world market.

But March and April have been historically hot in India, which is where the harvest season has largely begun. Rising temperatures and drought led to premature ripening and wilting of the grains in the three major producing states of North India, Punjab, Haryana and Uttar Pradesh.

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“Instead of the expected 110 or 115 million tons of wheat, production in India is expected to eventually reach only 95 million tons.”Nathan Cordier explains. a “Steep decline” Which threatens the country’s food security and prompted Prime Minister Narendra Modi, on Saturday 14 May, to impose a ban on wheat exports.

The announcement came after the price of wheat broke its record to close on Monday evening at 438.25 euros per ton on the European market for close delivery. Ten days ago, the Indian Prime Minister nevertheless assured his Western counterparts that India would do so “Feed the world”It is expected to export 10 million tons of wheat in 2022, compared to 7.21 million tons in 2021 and 2.15 million tons in 2020.

Fears in France, the main European exporter, faced an early drought

Finally, France, the main exporter of wheat in Europe, also suffers from a severe and early drought that occurs in the crucial growth stage of the grain and which requires large amounts of water. In 2021, French production amounted to 35.5 million tons of wheat, or 27% of European flows.

Two months before harvest, it is still too early to know to what extent French production will be affected. But professional organizations, as well as the government, have already issued alerts. While the month of April recorded a rainfall deficit of 25%, the spring drought “It will have an effect on grain production,” Thus warned, on May 9, the Ministries of Agriculture and Environmental Transformation. ‘No area is spared’The National Federation of Farmers’ Unions (FNSEA), quantification “up to 40%” impotence “If time is left”[ait] dry for several weeks ».

If food security in France is not in jeopardy, according to Agritel, these yield concerns still weigh on the global wheat market, supporting higher prices. In the face of all these constraints, the market “Expect” Crisis, continues the analyst, is trying “Quotas by price to reduce demand” Thus restoring equilibrium with reduced supply.

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If the French harvest is really bad, the market ‘Maybe more’ And reduced supplies may eventually jeopardize the global food balance ‘Cause new food riots’ It concludes that in some countries they are highly dependent on wheat imports.

Without waiting for the next campaign, the United Nations is trying to secure supplies for the most fragile nations, and the United States hopes to persuade India to “Reconsider your decision” from ban. In the next 15 months, the World Bank will allocate about $12 billion (€11.3 billion) to combat food insecurity.

Much of that amount will go to countries in Africa, the Middle East, Eastern Europe and Central and South Asia, the foundation said. Somalia, Pakistan, Egypt and Lebanon are among the countries most dependent on Russian and Ukrainian grain production. Bangladesh is the beneficiary of half of India’s wheat exports.

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