Another unusual season, as usual

08 June 20229 min reading

“When you see again food prices skyrocketing after doubled prices or even empty shelves, please make sure you understand who did this to you. Nobody knows if Russia and Ukraine will be able to supply their typically export volumes. As usually, we launch another unusual season.”

Elena Faige Neroba
Business Development Manager

Week ahead WASDE, Black Sea news and weather are market drivers. Corn planting window closed these days in the Northern hemisphere. Russia’s willingness to establish an export corridor, month-end spec liquidation and waning export demand in the US. China hasn’t purchased notable quantities from the US since April and allowed Brazilian corn. That means Beijing doesn’t believe in Russian intentions. As Brazil going to increase exports from Paraguay, it can add a few million tons of corn to their export potential same time. Safrinha harvest has started in Mato Grosso where IMEA reported pace at 6% done and ahead of zero average. Now that yield results will be available the trade can determine production for the region (expected near 36-38 MMT vs Conab’s latest at 40 MMT). If the lower estimates are realized, the total Brazil crop will reach 110-112 MMT and below the latest USDA estimate at 116 MMT. IHS also lowered their Brazil crop estimate to 113 MMT vs 115 last month. Parana harvest should begin soon.

The EPA issued official US’s biofuel blending volumes for 2022 that were slightly below the previously proposed numbers. The final volume for 2022 was listed at 20.63 bln gal vs 20.77 with the reduction in cellulosic biofuels. The ethanol mandate for 2022 was set at 15.0 bln gal vs 13.79 in 2021. The EPA recognizes that conventional ethanol use will likely fall short of the 15.0 bln mandate, potentially by as much as 800 mln gal. The EPA expects that the shortfall will be made up with greater volumes of bio and renewable diesel. They also reasoned that maintaining the mandate at 15.0 continues to provide an incentive for the industry to expand the infrastructure for higher blends.

IHS Markit updated world production estimates and it’s interesting to note their Ukraine crop size at 24.5 MMT vs the USDA at 19.5 and below the current year’s crop of 42 MMT. The planted area has already reached 4.6 mHA and a 25 MMT crop assumes yields near 5.5 tn/HA at the low of 5Y average because of the War. 

Ukrainian export corridor talk was a feature all week and there is a high-level meeting on this issue on Jun 8 in Ankara with Russian Defense Minister Lavrov. Putin also turned up the rhetoric on grain exports with statements that Russia was ready to guarantee exports from the Azov Sea and that they will increase grain exports to 50 MMT. Putin also indicated that Ukraine could export grain from the ports it controls. 

Russian SovEcon served up a 42.3 MMT Russia wheat export forecast vs 41 previously and USDA 33 this year. Rumors appeared on the market that farmers in the regions were ordered to increase their yields in order to legalize grain exported from Ukraine under the guise of a record Russian harvest. USDA’s May forecast for Russia’s 22-23 exports at 39 MMT seemed wildly optimistic and 42.3 is off the charts considering the sanctions, war risk and potential lack of insurance and fleet. Iran expressed its readiness to re-export Russian grain to other countries. In addition, Russia and Iran intend to introduce trade based on barter. Russia will supply raw materials to Iran, and Iran is ready to supply gas turbines and auto parts to Russia. 

Meanwhile, Pakistan denies the decision to trade in barter. The market is too sensitive to these promises, while Russian troops damaged another port infrastructure facility the current days and Turkish officials mentioned that even in case of positive decision opening ports could take up to 5 weeks. The Russian government, supported by around 86% of Russians which is 100 million of people, purposely blocked exports of feed grains, vegoils and protein meals from Ukraine and during the last few seasons sets duties, quotas to check how string your patience is. While Russian troops are destroying Ukrainian fields, railways, silos, terminals and ports, your pockets became empty. 

Still, there are lots of problems and security questions about this process. Rumors give hope to inexperienced market participants. In fact, Russia is demonstrating the opposite: it has already been announced that the effect of restrictive measures on the export of grain, sunflower, fertilizers will be extended, which will further aggravate the food crisis. In the Russian-occupied Ukrainian port of Mariupol, the loading of a batch of metal onto a ship of the Slavutich type has been completed. it will deliver the cargo to the Russian port of Rostov. The port administration reported that the second vessel will depart from Mariupol on June 2-3. Similarly, the Russian occupiers announced their intention to export grain and other goods from the rest of the captured Ukrainian ports. The Russian dry cargo ship Matros Pozynych, carrying Ukrainian grain from the southern regions, made its 2nd voyage to Syria, writes CNN. More grain was stolen from Ukraine. Russia continues to blackmail the world with food, demanding the lifting of sanctions. At the same time, there are no sanctions on the grain trade, and the Kremlin itself has stated that sanctions will benefit Russia. The lack of a sufficient number of merchant ships is a consequence of the war that Russia unleashed, and not the fault of the “collective West”. Therefore, the Russians announced their intention to build their own fleet. In the absence of technologies, equipment, basic spare parts and mechanisms and total corruption in the country.

 Indian banks have begun to open letters of credit to buy Russian agricultural products and provide other loopholes to buy Russian agricultural products. The governments of Russia and India are working to harmonize the payment system in rupees and rubles in order to circumvent banking sanctions. In light of the growing panic in the wheat market, a negative scenario may play out in the rice market.

China will provide a loan to the government of Pakistan. In addition, there are rumors that there will also be a deal to buy fertilizers and wheat. They strongly support information about the biggest stocks on Chinese silos and – who know – maybe Beijing will show how influential they are. According to the Ministry of Agriculture and Rural Affairs of China, on May 29, the wheat harvest in the country is in full swing. 37.98MMT of winter wheat harvested in the country, the wheat crop in Sichuan province is coming to an end, in Hubei province has already exceeded 80%.

Both CBOT and Euronext will react on it while the physical market shows strong levels. GASC booked the first vessels for the new ongoing season Year ago on April 6, 2021, they started marketing year’s tenders buying FOB 10 dollars lower MATIF (CIF equivalent 9 dollars over MATIF), but this time they were waiting for the end of domestic harvesting and booked FOB 40 dollars over, CIF 72 dollars over. These are the result of the war, expensive logistics and poor crops expectations which is more clear than April’s compared to the common harvesting schedule. Egypt has bought 2.7 MMT of local new crop wheat into reserves as of May 23, with the intention of buying more than 5 MMT during 22/23. The tender season for Turkey and countries of the MENA region is open officially. 

US new crop export commitment at 3.4 MMT, while unshipped old crop sales at 900kmt at the low end of the recent 6-year range for this date at 4.5-6.6 MMT. The Southern Plains weather pattern, as well as the EU, turned more favorable, but it remains to be seen if the moisture is too late. Agrimer dropped France wheat ratings to 67% good/exc from 69%. Improved moisture is in the forecast so it’s already priced. 

 Wheat is on a big break from the mid-May highs which happened to coincide with India's export ban, and now the country has no plans to curb food exports for now, a minister said, weeks after New Delhi banned private wheat exports. The government's decision to ban wheat exports and restrict sugar exports had raised doubts about some curbs on overseas sales of rice as well. This is a clue to India’s wheat problems. Global buyers, as per LaSalle Group, still don’t have much July forward coverage and peak shipping for the Black Sea both from farmers and exporters. 

According to Turkish experts, under favorable weather conditions n 22/23, Turkey can harvest 16.5-17.5 MMT of wheat, including 3-3.5 MMT of durum wheat against 15.5 MMT a year earlier (2.5 durum). Despite the increase in wheat yields in Turkey, the country could potentially lose part of the flour market to Russia. The export duty on wheat has made processing within Russia more profitable. The quality does not yet correspond to the Turkish one, but individual flour mills in Russia are already negotiating with the Turks regarding the use of Turkish trademarks. 

Brazil is expected to increase wheat production by 3-11% this year, according to Embrapa Trigo. Record prices, growing demand and “favourable climate expectations underpin the forecast for acreage increase” from 2.7 million hectares in 2021 to just over 3 million hectares in 2022. But the country of 213 million people can no longer meet domestic demand, which is estimated at 12.7 MMT per year and continues to grow. Domestic logistics costs have forced many farmers to opt for exports, which has increased the need for imports. Wheat sowing in the Brazilian state of Paraná reached 53% in the week ending May 23, up from 58% year-on-year, according to Deral. Parana expected to harvest 3.8 MMT of wheat, +20% yoy, from 1.1 million hectares, -5%.

As more uncertainty on the market, as interesting trader’s job is. When you see again food prices skyrocketing after doubled prices or even empty shelves, please make sure you understand who did this to you. Nobody knows if Russia and Ukraine will be able to supply their typically export volumes. As usually, we launch another unusual season.

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