Rising tension in the Middle East and renewed Chinese demand have supported the wheat market last week

The Euronext wheat milling futures DEC-23 contract price [Mintec Code: WHT2] settled at €244.5mt, up 3.38% week-on-week (w-o-w) at yesterday’s close, 18th October 2023. This week’s wheat price has been supported by the latest WASDE USDA report estimates, active fund purchases and the rising tensions in the Middle East that led to risk premiums on crude oil, and consequently on a large part of the commodities sector.  

The market focus is turning increasingly to drought-tested crops in Argentina and Australia, as harvest approaches with potentially lower production figures. According to the Buenos Aires Cereal Exchange, wheat production in Argentina is reduced by 300 thousand tonnes to 16.2 million mt in the 2023/24 season (USDA estimates 16.5 million mt). A Mintec source added, “The crop will be still a lot better than last year but compared to 2-3 years ago it will be lower because of the adverse weather. A large part of Argentina is quite dry, and the south of Buenos Aires area is in better condition. The crop will be in a smaller volume of available wheat but if farmers use all the technology available it could be good quality wheat.” Australia is experiencing the biggest yearly decline in production estimates this year so far according to the USDA, down 38% year-on-year (y-o-y) at 24.5 million mt. A Mintec source added, “production expectations vary across regions. Some farmers will see more or less fine production figures, while other will face decisions whether it is worth harvesting the crop.” Market players are concerned that curtailed Argentinian and Australian crops could impact global trade flows starting in early winter. 

Together with China’s growing demand for milling wheat, the market is seeing some support for commodity prices. Last week China purchased an additional 181 thousand tonnes of US soft red winter wheat, totalling around 680 thousand tonnes of wheat purchased from America in the last 3 weeks. Additionally, China has reportedly made additional purchases of French milling wheat since Australia, the top wheat supplier to China, is suffering crop losses due to hot and dry weather. A Mintec source commented, “China has been scooping for cheap wheat supply in recent months since their own domestic production has been lost due to torrential rain back in May-June. Thus, increasing demand or threats in the Black Sea region could lead to a short-covering rally.” 

Tags: price, Production, wheat, futures, Market, Argentina, soft red winter wheat, demand, Australia, Euronext, China, harvest