Market volatility is growing after a series of USDA reports, awaiting for May WASDE and another round of negotiations between Ukraine and Russia. With the weakening of the Russian army and defeats in the conquest of Ukraine, the rhetoric of the representatives of the Russian Federation at the negotiations from far-fetched propaganda demands for "denazification" and others was replaced by a demand for recognition by Ukraine of the occupied inland corridor to the occupied Crimea. 

Drought has already begun to develop in the US South, North Africa and the Middle East while weather conditions in Latin America are not yet a cause for concern. Clearly, farmers whole over the globe may prefer cheaper-to-produce soybeans over fertilizer-requiring corn. Wheat partly planted and we should be all-eyes on weather and chemicals.

Off the coast of Romania, another drifting mine was eliminated. In total, Russia, according to them, untied more than 400 mines for the purpose of sabotage in the Black Sea, and some of them have already reached the shores of Turkey and other Black Sea countries. We defiantly faced with a new corn deficit – US lower than expected areas together with Ukrainian war planting could cut 30-35MMT from our expectations.

Wheat is a key product for global food security. Corn is a basis for animal feeding. 

For the current season according to favorable weather conditions Ukrainian and Russian share in wheat and corn exports could be even higher but for today exports almost stopped. Ukrainian ports were a key border for grain exports – 95% of corn, wheat and barley are usually exported via the Black Sea and Azov Sea Port. All of them a blocked as per military actions. Meanwhile key Russian port – Novorossiysk – still operate. 

As per market information, exports volumes fall almost twice as international buyers do not want to buy Russian wheat for many reasons – high costs of insurance and logistics, sanctions or moral aspect. This means both Ukrainian and Russian exports will not reach target volumes in the 21/22 season. It means the market has to replace Black Sea wheat and corn demand.

Unexported grains could be consumed domestically in Russia, but not in Ukraine as the population there was around 38 million people before the war and now even lower. It means that Ukrainian domestic consumption will fall by 1MMT in wheat and around 0,5MMT in corn via lower poultry production. Same time EU consumption and exports should increase as 3 million Ukrainians have already moved to European courtiers and EU shell to sell more grains to North Africa first of all. 

Argentina, as well as Canada, could partly replace Russian and Ukrainian wheat in North Africa which leads to lower stocks, but key problem here is fobbing and logistical capacity. Still, the EU as the well-known seller will take major place here, but ending stocks could fall to 6-7MMT. As per East-South Asia, here market expected bigger volumes of Australian (+1MMT) and the US (+0,5MMT) wheat in the current season but ports facilities are limited as well. India can offer additional 2-3MMT of wheat to Bangladesh, Afghanistan, etc.

90% of Ukrainian wheat is winter crop which is already planted and remains in good condition. Usually in March farmers started to put fertilizers but due to lack of fuels and partly as per occupation or even military action it’s partly impossible.

Ukraine planted 6,5 mln ha with winter wheat for the next season and spring wheat areas last year were just 176k ha – it’s around 1MMT of the potential crop. In the worst scenario, –without spring wheat and without the first part of fieldworks on winter crops, excluding timely occupied territories-, the Ukrainian wheat crop could set just 14.4MMT, while the optimistic scenario – 23MMT, including Crimea areas which officially belongs to Ukraine but have been harvested by Russia for the last 8 years (0,7-1MMT of wheat yearly).

Domestic consumption will be covered but without ports opening, Ukrainian crop will face export problems. So in the worst scenario, we should exclude Ukraine from exports S&D 22/23 almost totally. The current railway capacity is 7-8 MMT for all kinds of grains and by-products per year. Even if we build terminals on the European borders, this logistics channel will need time to turn on and rise to 10-12MMT per year.

 If we talk about demand, we have to keep in mind that new wheat crop planting in North Africa and the Middle East will start in April and they are suffering from dryness while wheat is a base of people's daily diet. These Arab countries consume the highest wheat per capita, about 128 kg of wheat per capita, which is twice the world average. More than half of this comes from Russia and Ukraine. Governments have already started to seek money for state wheat reserves. We expect at least 4MMT of wheat deficit in these regions.

Current prices on the physical market are historically high and in case the war does not stop in the nearest future, they will continue to rise. Uncertainty put additional wood to the inflation fire and some counties already started to limit exports of food to increase stocks in case of breaking of the supply chain.

KEY BUYERS – DATA FROM KSE

Egypt: Over 32% of the population are living beyond the boundary of poverty, lack of food and hunger is a major problem for Egypt.

Yemen: Indicators of malnutrition among women and children are left with the most in the world, 1.2 million young women who are young, and 2.3 million children under five years of age suffer from malnutrition.

Indonesia: 14.3% of the population live outside the borders of vigilance, and 19.4 million are not in full possession of food.

Bangladesh: 40 million people know of a power outage, and 11 million suffer severely from hunger.

Ethiopia: 5.9 million suffer severely from hunger.

Lebanon: 22% of Lebanese families know interruptions in their household.

Libya: 83% live on less than $1.25 per day, 699,000 people experience power outages.

Pakistan: 20.5% of the population are malnourished, 44% of children younger than 5 years old are in education.

Iraq: 2.4 million additional expenses will be required for the foundation.

While the world is trying to calculate potential Black Sea corn areas and yields, according to consulting firm AgRural, 94% of Brazil's second corn crop has been sown, up 20 percentage points from the same time last year. The central states of Mato Grosso, Goiás and Minas Gerais account for about 60% of safrinha maize production and plantings in these states were completed earlier this month. The crop was sown under conditions with an excellent soil moisture profile in most regions, ideal for early plant growth. In fact, according to WeatherTrends360, the states of Goiás and Minas Gerais could be the fourth or fifth driest March in over 30 years. Dryer-than-usual trends are expected to continue in much of the same areas of east-central Brazil into early April. Rainfall will be close to or slightly above normal for the state of Mato Grosso, the main producer of safrinha, where soil moisture remains in good condition. Southern Brazil, where the growing season for soybeans and early corn was very dry, saw some rainfall in March 2022 and could be the third or fourth wettest March since 1992 or earlier for Rio Grande do Sul. More than 150 municipalities in the North, Midwest and Northeast have been warned of the potential for heavy rainfall of 50 to 100 millimeters per day and strong winds of 60 to 100 kilometers per hour starting Monday. According to the National Institute of Meteorology's Inmet alert system, these heavy rains, accompanied by gusts of wind, carry the risk of power outages, falling tree branches, flooding and electrical discharges.

CONAB lowered its first corn yield estimate to 24.3MMT a few weeks ago. But his forecast for a critical second crop was raised to 86.2 MMT. According to Safras & Mercado, farmers in many regions responded to high price signals and almost certainly planted more second-crop corn than originally planned. As a result, the company hopes to increase safrinha corn production to possibly more than 83MMT and forecast a record total corn crop of 115.7MMT. Agroconsult published a much higher second crop forecast of 92.2MMT. In terms of exports, Safras & Mercado has so far received 34.5MMT, up 66% from last year. CONAB is 35MMT compared to 36.68MMT in January, but this forecast was made public before the invasion of Ukraine. StoneX is far more optimistic about Brazil's increased role in the corn trade this year, posting an export estimate of 40MMT, nearly double what it was last year. USDA is still at 43MMT. Spain temporarily relaxed import rules for Brazilian and Argentinean corn two weeks ago after supply disruptions arose following the Russian invasion of Ukraine. Rumor has it that Spain will buy 400kMT of Brazilian second crop corn.

Do not think that Russia attacked only Ukraine. And stolen tractors are only a small part of the problem. Ukraine will not sow part of the area and the world will not receive part of the grain. The second problem is the lack of seeds and chemicals in Russia. In addition to a dirty reputation and difficulties with banks, production in Russia may also be below expectations. And the government's policy of curbing food riots by subsidizing bread and duties makes production less profitable.

Thus, we switched from the question of "how much we did not buy this season" to the problem of "how much new grain should be subtracted from our assumptions", how to live with it and where to get the money for this.