EU wheat surges to record as supplies continue to tighten EU wheat surges to record as supplies continue to tighten EU wheat surges to record as supplies continue to tighten

EU wheat surges to record as supplies continue to tighten

Ole Hansen

Head of Commodity Strategy

Summary:  Following on from the recent surge in fuel and gas prices, another and equally worrying rally is currently taking place across some of the world's key food staples, most notably wheat where the price of high protein milling wheat in Paris has reached record levels. The rally has been driven by a potent combination of tight supply following a troubled growing season in North America, rocketing fertilizer prices and strong pent up demand from key buyers in the Middle East and North Africa


Following on from the recent surge in fuel and gas prices, another and equally worrying rally is currently taking place across some of the world’s key food staples. Most notably wheat where the price of high protein milling wheat in Paris earlier today breached the record high from 2008 at €295.5 per metric tons, while over in the U.S. the cost of Chicago wheat trades above $8 per bushel for the first time since 2012.

Paris Milling wheat trades at record levels, thereby exceeding the high levels that was partly to blame for the Arab Spring uprising a decade ago.

Source: Saxo Group

A poor harvest in North America together with a 14% year-on-year decline in exports from Russia, the world’s largest shipper, has triggered increased demand for European sourced wheat, and with the prospect for another potentially challenging crop year in 2022, caused by a returning La Ninã weather phenomenon and high fertilizer costs, some of the major importers have recently been stepping up their pace of purchase.

These among others include China as well as countries in the Middle East and North Africa. As an example, Saudi Arabia this weekend booked 1.3 million tons of wheat in a tender, according to Bloomberg almost double the amount expected. Top importer Egypt which so far has trailed its buying pace from last year by more than 20% has stepped up its purchase activity after recently having declined the prices being offered. A sign that countries not only in North Africa but elsewhere as well need more supplies to cool local food prices, and to secure supplies ahead of winter.

The US Department of Agriculture in its latest update from October put world wheat ending stocks at 277 million tons compared with 321 million tons a year ago. The next update from the USDA will be released on November 9 and prior to that the UN FAO will publish its monthly food price index this Thursday. The index which comprises 95 price quotes across five different categories from vegetable oils, cereals, sugar to dairy and meat reached a ten-year high in September, representing a year-on-year increase of 32.7%.

Adding to the current unease about the prospect for the winter and spring production of wheat and other key crops, has been the recent surge in the cost of fertilizer. The market has been hit hard by the natural gas crunch which in Europe has forced a number of nitrogen-fertilizer plants to halt or reduce production. A gauge of western European prices for ammonia, used to make nitrogen fertilizer, has recently surged to a 13-year high above $900/tons, close to triple the average price seen during the previous five years. These developments raising the risk for either a lower usage of fertilizer or a switch to less fertilizer intensive crops.

With buyers increasingly competing for supplies the market will look for some relief from the upcoming in harvests in Argentina and Australia, taking place from now until January. The outlook for production in both countries look promising with the Argentine crop expected to reach 19.8 million tons (Source: Buenos Aires Grains Exchange) and 32.6 million tons in Australia (Source: Abares), with is just 2% below last season’s record output.

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)

Saxo Markets
40 Bank Street, 26th floor
E14 5DA
London
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo Markets is a registered Trading Name of Saxo Capital Markets UK Ltd (‘SCML’). SCML is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo Markets assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.

©   since 1992