Black Friday, which traditionally marks the start of the Christmas shopping season, this year has potential to become a meaningful phenomenon in grains too. Let us have a look why.

The past few weeks have been incredibly volatile in the grain markets with many different drivers and lots of changes to keep things interesting, and to keep the market players on their toes. 

Politics and weather invariably remain the main focus in the grain markets and impact the trading sentiment. Center stage today is played out between the immediate availability of Black Sea wheat as well as the outlook for the months to come due to its impact on the world S&D. The confirmation of the prolongation of the ‘grain deal’ by Russia for another 120 days extending on paper the export corridor for Ukrainian grain without changes in the terms has managed to ease the sentiment in the market, however, the ensuing blackouts in the Ukrainian ports, which remain for the most part inoperable due to the recent massive shelling by Russian troops of gas and electricity infrastructure across the county, spiked immediate concerns about the actual availability of Ukrainian grain through the ports. Over 3 million tons of Ukrainian wheat, 4 million tons of Ukrainian corn and close to 10 million tons of all grain and oilseed products which have been shipped through this corridor, have eased the pressure on the global wheat balance sheet while placating the immediate demand with increased availability of Ukrainian grains and oilseeds. However, time will show how much will be physically exported and for how long. Today it is still unclear what will happen upon the expiration of this extension.

What is clear at this moment, is that the queue of vessels in the Bosphorus albeit down from its peak, is not far from 100 vessels, some of which have been waiting for over a month. Current average waiting time in the Bosphorus is around 20 days inbound (although some of the vessels in the queue have been waiting for over a month), and around 5 days outbound. This makes freight calculations tremendously expensive and contributes to high CNF prices at destination.

Mother Nature added fuel to the proverbial fire resulting in the extreme volatility ravaging grain markets. It is hard to remain optimistic about the estimated Argie grain production numbers while approximately three quarters of the corn will be planted late and the weather conditions for the late-planted corn is yet to be determined knowing that late planted corn usually yields 10-15% less than early planted corn. Same goes for the wheat, where current crop estimates do not exceed 11-12 million tons, meaning that there will be no aggressively priced offers out of Argentina. Furthermore, Australia has recently experience some unwanted heavy rains ahead of the harvest, which might adversely affect the crop. Serious weather issues persist in the United States as well. The ratings of the recently planted HRW in the US are currently at the record low levels and the relief for ongoing dryness is yet to come. On a different note, US wheat visibly struggles to capture any significant global demand due to logistical constraints and high prices for moving grain internally, which contribute to making it look expensive compared to other origin. Rumors of Lithuanian wheat sale to Iraq and of Polish wheat sale to the US, therefore, come as less of a shocker. 

The demand side is not looking very cheerful with the emerging cases of bird flu in the EU, which does not bode well for the feed offtake. Furthermore, the economic recession in Europe, and the consumers reaction to it are not to be ignored. Having said that, the weather in Europe so far has been mild and the expected cold front with cooler temperature moving into the north-east (Germany, Poland and the Baltics) will put consumer resistance to the test. This colder outlook will also drop down into Ukraine and parts of South Russia, where snow cover is currently for the most part absent.

Having said that, one of the most feared turnaround factors in the grain markets today is the recent emerging Chinese demand with rumors of purchases of at least 4 cargoes of French wheat along with some barley. 

At the moment Russian wheat remains the cheapest available origin nearby, but other cash origins are not going down. Just over a week ago, for a couple of days EU wheat became the cheapest origin on the back of the quickly appreciating dollar explaining the logic behind the rumors of Polish wheat sale to the US, which in itself is a very unusual trade! From fundamental perspective, EU cannot afford this situation to last without further tightening of its already tight S&D, bearing in mind that the EU farmers have already committed nearly three quarters of their crops before the winter even started.

Grain markets have eased significantly from the highs back in the early October, and prices until recently had a tendency to trend lower on the back of slower demand due to looming economic recession undercutting consumer demand, lagging US exports and fears of bird flu in Europe. So much so, that the recent emergence of bullish factors, i.e. reviving of Chinese demand, concerns about unfavorable weather in the US and South America, increasingly tense situation in the Black Sea and worries about the new crop, may all point in the direction of an imminent reversal in the market sentiment and a good opportunity for short covering.