Apr 28 2022
Europe's wheat farmers are having to consider when best to sell their upcoming crop, two months after Russia's invasion of Ukraine triggered a surge in prices that has resulted in a steep backwardation in the market.
That surge applied to prompt delivery as importers rushed to secure alternative supplies. But with most farmers' wheat was in the ground, not in silos, they have been watching forward prices for delivery in the months after the 2022 harvest.
While France and Romania are the EU's two largest exporters, farmers in the two countries have shown a very different appetite for risk, sources said.
"French farmers have been selling quite a lot ... while in Romania farmers are not moving," said one trader, who estimated that around 30% of France's wheat crop has already been sold for the 2022-23 marketing year (July-June).
Rising input costs, especially for fertilizer and fuel, would typically encourage wheat farmers to lock in future sales, often under pressure from banks who have financed the purchases.
But many now believe in the potential for further price increases.
"We are not seeing much activity at all on the new crop ... it is very unusual," said another participant in the Black Sea wheat market. "They [Romanian farmers] want to wait as long as possible not to sell too low, as long as Russia and Ukraine remain absent or slow, and they do better still."
Ukraine represented 8% of total global exports in My 2020-21. The suspension of its seaborne exports at the end of February was felt most acutely by those seeking wheat for shipment in March and April, leading to a steep premium for prompt cargoes.
In France, a farmer who agreed April 27 to sell 11% protein wheat for delivery in May would receive Eur418.50/mt ($449/mt) while they would get Eur41/mt less if they sold for delivery in September (based on the price of MATIF wheat futures at 1630 GMT).
The backwardation between May and September is typical given that the new wheat crop is usually available across Europe from late June, but the size of this year's discount is exceptional.
At the same point in 2021, when the May contract was at Eur248/mt, the discount for September was Eur20.25/mt. It was just Eur8.75/mt in 2020 and Eur10/mt in 2019.
The closure of Ukraine's main ports has forced grain exporters to employ trucks, trains and barges, which limits exports to around 500,000 mt per month, rather than around 5 million mt before the war, traders said.
Russia's ports, meanwhile, were expected to ship at least 2 million mt of grain in April, not far from pre-war expectations for this comparatively quiet point in the year.
But Russia's wheat exports may show larger year-on-year falls after the harvest, given that the war has made it harder for Russians to insure cargoes and find vessels.