"It is quite sad, but nowadays grain trading has more and more political coloring. Fundamental factors could be easily neglected by trade time to time, when Trump tweets, and China retaliates. There is a lot of challenges in grain trading on the start of 2020. We will cover at least 10 of them."

Christina Serebryakova Head of Analytical Department & Agricultural Commodities Broker Atria Brokers

#1, 2, 3: Political woes - trade wars, sanctions, revolutions When Trump tweets, grain markets are shivering. At the intersection of 2019 and 2020, CBOT was well supported, when U.S. President Donald Trump said Phase 1 of the trade deal with China would be signed on 15 Jan and that he would later begin talks on the next phase.

China, from the other side, has its own unbeloved ones: Canada and China. Herewith, in 2019, Canada has shipped the most wheat to China in 14 years, contrasting a halt in canola trade amid a diplomatic dispute between the countries. As well, China's commerce ministry extended an anti-dumping investigation into imports of Australian barley by another six months (should be completed by May 19, 2020). A long-running tensions with the U.S., Australia and Canada have forced China to source about 1 MMT of wheat from the EU (mostly France) compared with feeble volumes in four previous seasons.

The wind of political challenges transforms the trading routes, rearranges the accents, adds obstacles.

#4: Economic pushers - Who is on duties today? On December 14, 2019, Argentina’s new left-wing government eliminated export duties of 4 pesos per US dollar, and replaced it with a 12% duty for corn, wheat, sorghum, sunseeds and barley. For soybeans, the export duty was increased to 30%, with further hikes to 15% and 33%. Such a change received a hostile reception by local farmers, who are pushed to change their structure of plantings. At the same time, such a change was positively received by competing countries, namely Ukrainian wheat and corn segments.

Supply of wheat and other commodities became scarce in Lebanon in autumn 2019 after two weeks of historic protests against the government. Banks were totally shut over safety concerns for a few weeks. Also banks were worried that depositors may take out their savings. This lead banks to change the payment procedure. In accordance with new rules, in order to transfer money for the vessel of wheat, corn or other commodity, Lebanese buyers were required to deposit their fresh money in their account in cash and only then the transfer could be done by the bank. In such a way, wheat reserves in Lebanon lowered to only three weeks coverage instead of three - four months normally. During about last two months, the payments became slightly easier for wheat import: the banks require 15% of the payment to be covered in USD by cheques/cash/transfer outside of the country, while 85% of invoice could be covered by cheques/cash in Lebanese pounds, which will be converted to USD by the bank at the official exchange rate. For other commodities, payers still need to bring to the bank 100% of money deposit (cheques/cash/transfer outside of the country) in USD. But, there are rumors that soon, for wheat the cheques will not work, and only cash will be accepted. Additionally, banks stopped credit lines of all people, so everybody can use only their own money.[/box]

At the same time, other countries consider relaxing duties to simplify the coverage by strategic commodities. According to AgriCensus, the government of Turkey is considering cutting tax on imported wheat from 45% to 10-20% at the beginning of 2020 to cope with lower wheat crop in 2019. Currently, Turkish millers have to pay a 45% duty on imported wheat, if it is not going to be re-exported as a flour, otherwise, it is duty-free.

On July 09, 2019, the Directorate General of Foreign Trade of India had allowed import of a total of 500 KMT of maize under the tariff rate quota at a reduced import duty of 15% during 2019/20 (Apr-Mar). The government had pegged 2018/19 maize output at 27.2 MMT compared with 28.8 MMT in the previous year, while industry players pegged the output at 22.1 MMT.

# 5, 6: Currency fluctuations, VAT refund Currency fluctuations were noticed in many countries in 2019/20. In case we take into consideration Ukraine, over the past few years, with their low hryvnia exchange rate against the dollar, market participants have developed several habits: keep savings in dollars and purchase everything necessary in advance if possible. At the same time, both farmers and traders have become used to the fact that the traditional strengthening of the hryvnia falls on the time of the field work. Some farmers with assets in dollars suffered significant losses due to the appreciation of the hryvnia in 2019. Via the exchange they received less money for sowing / harvesting. At the same time, the cost of sowing / harvesting remained at the same high level, as crop protectants sellers replenished the assortment at a high rate. This reduced the profitability of production, which was already hampered by lower purchase prices for wheat / corn / barley this season compared to last year due to the high yield. At the same time, a higher yield of key crops compensated partially the loss of farmers. According to our estimates, the largest losses in profitability are so far observed for corn (due to low world prices in the beginning of the season), as well as for soybeans (due to lower yields compared to last year and the cancellation of VAT refunds). In turn, the situation is better for sunflower seeds, wheat (especially feed, due to the limited number of its offers) and barley.

A similar situation with the strengthening of the national currency was in Russia. After such a decrease in profitability, farmers prefer to "sit" on stocks. Traders are forced to raise purchase prices in order to attract supply. Whereas they cannot significantly increase their selling prices due to competition from other countries. Profitability of traders also decreased.

Currency depreciation in Argentina (which is one of the main competitors of Ukraine in the world grain market), provided the country more competitiveness against Ukrainian grain.

Turkish currency depreciation made TMO to come into market for large amounts of wheat, corn and barley in USD. On December 14, 2019, Turkey's government increased wheat import quotas for TMO, the Turkish state grain buyer, by 500 KMT to 1.5 MMT to give the organisation more flexibility to cope with rising demand in the domestic market. Afterwards, this stocks are sold on the inner market in TRL.

#7: Logistics Transport infrastructure is a crucial issue for major grain market players. In Ukraine, for example, it is a lack of grain hoppers, limitations on the weight of the cargo, which could be transported by trucks, marine freight fluctuations.

#8: Quality concerns As a sample of such troubles, we should first of all, underline Ukrainian wheat export to its #1 export destination – Indonesia. The Indonesian Agricultural Quarantine Agency (IAQA) put forward a requirement for heat treatment of Ukrainian wheat from Tilletia laevis and Tilletia tritici spores at the port of origin, and later began to insist on analyzing wheat cultivation zones and assigning them status of free zones or zones with low infection with the above fungal spores. This significantly limits the possibilities of export, since not all marine terminals have such technical ability, and such processing significantly reduces the speed of loading onto ships. It is much more efficient to carry out such processing already at the port of discharge, and Indonesian customers have repeatedly confirmed this variant.

#9: Supply and demand balances Nowadays, fundamental factors have less influence on trading than previously. Even USDA reports are losing their effect on the market volatility. It is very often considered as a speculative instrument of political influence.

#10: Farmers sitting on stocks Recent few years of high crops in Ukraine and Russia enabled farmers to seat on stocks and wait for higher prices, traditionally noted in the second half of trading seasons. This fact is adding to the list of challenges of grain traders.

Mentioned 10 foes are bravely met by grain traders on a daily basis. You can never be sure from which side a new spark will come from. This makes trader juggling in the circus of a modern grain world.