Forward contracts of new crop wheat reach highest value since 2013
A series of production factors and demand needs pushed local wheat futures prices to their highest level in eight years. Barley, not far behind, also exhibiting bullish trend.
The bounce-back of prices seen in August consolidates the bullish trend for new-crop wheat. The Rosario delivery contracts for DEC-21 hit a new 8-year high last Friday, surpassing USD 230/MT in Matba-Rofex. Even though it has receded from that level, it is still comfortably above the value it recorded for August in recent years.
Sustained international demand coupled with production difficulties in key wheat supplying countries explains this new price spike. Thus, after the important increases due to the production cut that showed the last World Supply and Demand Report (WASDE), this week the international wheat trade returned with news. Purchases from Algeria and Egypt bumped prices, while there are still open purchase offers from Japan, Bangladesh, and Jordan. In addition, due to the significant damage to the French harvest, Algeria would have agreed to buy lower-quality wheat, according to Reuters.
This week’s closing of positions and profit-taking on part of investment funds made international prices fall, and which echoing the local market. Nonetheless, the traded levels remain above those registered at this in previous years. In Chicago, wheat fell nearly USD 10 on Tuesday, then remained relatively stable, finally closing on Thursday at USD 267/MT. In Matba-Rofex, after the peak seen on Tuesday, prices fell slightly, but remaining above USD 225/MT.
For a 2021/22 crop that kicked-off with complete optimism, and aiming to exceed 20 Mil MT, we can begin to see some setbacks appear in the horizon. The rains in August are still well below the historical accumulated and there is already signs of some water stress in some plots in the core area, according to the Strategic Guide for Agro (GEA). To make matters worse, the higher chances of registering a Niña phenomenon for the second consecutive year this spring/summer raises concerns about the supply of water during this critical period, and will be a determining factor for prices in the months to follow.
At the commercial side, a we could clearly see some reactivation in external trades of the cereal. So far in August, official export operations of the wheat complex were declared for about 1.10 Mil MT, a level well above the 0.66 Mil MT of the same month of 2020, and so far, the month with the highest volume since April this year.
Great time for barley
Sustained worldwide harvest difficulties will cause global barley production to drop more than 6% in the coming season, according to the USDA. Consequently, exports are expected to fall 4.6%.
Barley jumped on the commodities rally-train in June 2020. Since then, the FOB prices for the Argentine cereal have shown considerable increases, with a jump in 33% for the feed variety, and 47% for brewing. At USD 265/MT for feed barley and USD 280/MT for brewing, export prices have not been so high for Argentine origin cereals since 2013.
In this last 2020/21 campaign, Chinese demand for barley grew by 72.6%, becoming the main world importer of the cereal. With more than 10.3 Mil MT imported in the current season, the Asian giant’s share of the world market went from 20% to almost 31% nonstop.
As was well highlighted in the last WASDE, Canada expects a 29% drop in its barley exports for the 21/22 campaign, anticipating its worst harvest in four years. The North American country stands out as the fifth largest producer of barley in the world, and an important supplier to China, which continues to grow in demand for agricultural products. The outlook is not encouraging either in Australia and the European Union, the two main world exporters and also suppliers to China, which except drops in their exports of around 5%.
In this current context, interesting opportunities are emerging for Argentina and Ukraine. The Black Sea country expects an increase in its exports of more than 34% according to the USDA, while the Latin American producer aims to increase its international barley trade by more than 20%, according to the BCR’s estimates. Thus, Argentina would export more than 3.5 Mil MT of barley in the 2021/22 season.
In terms of tons exported, and considering an average of the last five years, about 42% of Argentine barley sold abroad is brewed, while the rest is traded as feed barley. Just in the first half of the year, barley amasses exports for USD 616 million, very close to the USD 659 million that it accumulated throughout the entire year of 2020. Clearly, this is a good indicator of the great moment that the grain is having in our country.
Source: https://bcr.com.ar/
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