Wheat rises on European crop worries

Commodities 5 minutes to read
Ole Hansen

Head of Commodity Strategy

Key points

  • Wheat futures in Chicago and Paris are showing signs of recovering after hitting four-year lows last month
  • Supported by the outlook for a poor harvest in Western Europe, partly offset by cheap supplies from Russia
  • A record tender from Egypt, Ukraine export cap and strong US sales also receiving some attention

Wheat futures in Chicago and Paris are showing signs of recovery after recently hitting four-year lows, supported by the outlook for a poor harvest in Western Europe, particularly in France, the EU's largest producer. Heavy rainfall in late 2023 disrupted winter wheat sowing, leading to poor crop establishment, increased diseases, and lower overall quality. Last month, the French agriculture ministry sharply reduced its 2024 soft wheat output estimate, now expected to be 25% below last year's, marking one of the worst harvests in 40 years. Southeastern Europe also faced extreme heat, impacting spring crops due to drought.

Supporting the recent recovery are dry weather concerns in the US and an announcement from Ukraine's agriculture ministry, limiting the country’s 2024-25 wheat exports to 16.2 million tons. US wheat exports have also surpassed last year's pace. On the demand side, Egypt, one of the world's largest wheat buyers, issued its biggest-ever wheat tender last month, nearly 20 times its usual size, following President Abdel Fattah al-Sisi’s decision, driven by food security concerns.

Each month, the US Department of Agriculture (USDA) releases its forecast for wheat carryover stocks. In August, the USDA projected world stocks at the end of the 2024/25 marketing year to reach 257 million tons, 9 million tons below the previous year and 26 million tons under the five-year average. US ending stocks were forecast at 828 million bushels, slightly above the five-year average of 758 million. The USDA’s next update is due on September 12.

Ample cheap supply of wheat from Russia, plentiful U.S. production and expectations of large harvests in Canada and Australia may counter the risk of a strong rebound in prices. However, large bets on lower wheat prices by speculators in the Chicago market has for now left the market vulnerable to a short covering. 

Paris milling wheat futures (EBMZ4) has bounced after once again finding support around EUR 204.5 per tons, but so far, the rally has yet to challenge levels that may signal a low has been established. For that to happen, the contract as a minimum needs to clear EUR 220.5 per tons, the July 16 low and 0.618 retracement of the August sell-off. Above that level traders will be focusing on EUR 231 next, the 0.382 retracement of the May to August slump - Source: Saxo
Chicago Wheat futures (ZWZ4) is currently challenging the 50-day moving average ahead of strong resistance at USD 5.79 per bushel. A break above that level may signal some additional consolidation with the next major level of resistance not found until USD 6.12, the 0.382 retracement of the May to August slump - Source: Saxo

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