A couple of years ago the grain markets could have been touted as relatively flat and predictable. Nowadays industrial users around the globe, such as millers, animal feed compound producers, crushers and the like, are coping with unprecedented volatility, with grain prices sharply up this crop season. At the same time, prices of other commodities are also moving higher, including energy, which affects production costs, as well as the price of farm inputs such as fertilizers and plant protection products.

Natalja Skuratovic
Senior Sales Manager CIS
CESCO EPC GmbH
As the Roman philosopher Seneca puts it, “Every new beginning comes from some other beginning's end.”
Nobody is immune to the end-of-the-year rush. At this time of year, we are all just big kids. It’s the famous Santa-effect. This makes it the perfect time for wrapping up business matters and last-minute holiday shopping, leaving cash markets to drift in vacuum. But before we do so, let’s take a good look at the commodity markets in general and the wheat market in particular.
Leading wheat exporter Russia has been hit by a smaller crop and state grain export curbs in 2021. Russia's government has increased its grain export taxes for the last time in 2021, meaning that the Russian counterpart of Santa Claus – Grandfather Frost, or Ded Moroz – is not overly generous to the Russian grain buyers this holiday season. Furthermore, Russian Ministry recently published the quota for February 15 – June 30, 2022 amounting to 11 million tons of grain, including 8 million tons of wheat. Interestingly, Russian December wheat exports are currently estimated at almost half of that number, namely 3,9 million tons. Top destination for Russian wheat in December 2021 is Algeria with around 200,000 tons shipped there so far. The Russian success in Algeria could be one of the reasons behind the somewhat subdued end-of-the year cheer in the Matif milling wheat values.
Below chart by Russian Institute of Agricultural Studies IKAR shows the cost of interior and export logistics in Russia with an apparent gradual increase in importance of the local grain market giving a vector of future development for the new year. If this trend persists, this could mean that the local market could gradually pull the grain towards the interior at the expense of Russian grain exports.

Alternatively, another grain superpower in the Black Sea Ukraine has gained in importance in the international grain market this season. Having harvested a record wheat crop estimated at over 32,5 million tons, Ukraine plans to export 25,3 million tons and Ukrainian authorities announced not to consider imposing any restrictions on grain exports to curb them in any way. Ukrainian grain infrastructure is to be further improved in the coming years for the benefit of local producers and final consumers alike as there are substantial savings yet to be realized along the way.
One of the important factors for the price definition of grain is weather. A fierce winter storm can simply shut down the efficient movement of any type of freight. When the navigation conditions for small vessels on the Azov are severe and large port infrastructure is incapacitated by spells of cold icy weather, it can reduce the supply and push up the prices for spot deliveries. Until now, we have been blessed by a fairly mild winter in Europe and Black Sea alike. Mother Nature has been extremely clement so far and winter-kill predictions for the Black Sea have failed to materialize as cold snaps have been of a short-lived character and are not believed to have caused significant damage so far. This been said, we have seen otherwise on many occasions, come proverbial Epiphany frosts. Especially worrisome is the situation in the south of Russia and south of Ukraine in the event of persistent cold snaps due to the lack of snow cover. Fingers crossed.
In the Southern Hemisphere, the nature is also a concern. Similar to last year, la Niña weather pattern is already showing up in parts of Brazil, the world’s biggest soybean exporter and it is not a welcome sight as La Niña can bring about drought and reduced crops and, thus, fuel a further spike in food prices. Paraná is the only region with consolidated losses due to dryness so far. Brazil’s south remains in the center of attention. Rio Grande do Sul, a top-growing state at the border with Argentina almost finished seeding in less than perfect conditions. Below-average rain during seeding means that some farms need replanting. Yields will largely depend on rains from now on.

Second bumper Australian wheat harvests in a row is a remarkable turnaround from three years of extreme drought and meager crops. Australian broker Ikon Commodities says that the country's wheat crop could be close to 39 million tons as opposed to the USDA figure of "only" 34 million and 2020/21 record-high crop estimated at 33.3 million tons. Renewed availability of Aussie grain after repeated recent shortfalls, curtails trade routes and optimizes logistics for key importers in neighboring Asian countries. Naturally, as longer trading routes lead to ceteris paribus higher freight rates, making grain at destination more expensive, especially in the current environment of high energy prices.
Talk of China booking another 500kmt of Aussie feed wheat for April-May positions might be a harbinger of a long-awaited thaw in recent political and trade tensions between the two countries. It has been one of major concerns for the world grain markets and influenced the buying decisions in the past few years. When geopolitics rules, prices as a decisive factor in purchasing decisions, lose their relevance, thus, affecting the validity of key market mechanisms. This, in turn, severely affects global trade flows.

China’s increasing demand for grains and oilseeds continues to play a key role in stimulating growth in agricultural exports globally. China keeps importing more grain and other foodstuffs this season as domestic production struggles to keep up with local consumption. Also, demand for feedstuffs for the reinstated after the swine fever number of pigs and other livestock is expanding on the back of the economic growth. According to data from the U.S. Department of Agriculture, by the first half of crop year 2022, China is expected to hold 69% of the globe's corn reserves, 60% of world rice and 51% of world wheat.

According to Nikkei Asia, over the past five years China's soybean, corn and wheat imports soared two- to twelvefold on aggressive purchases from the U.S., Brazil and other suppliers. Imports of beef, pork, dairy and fruit jumped two- to fivefold.
As a result of this massive Chinese shopping spree, food prices shoot up worldwide. The food price index, calculated by the U.N. Food and Agriculture Organization, in November was about 30% higher than a year earlier. "Hoarding by China is one reason for rising prices," said Akio Shibata, president of the Natural Resource Research Institute in Tochigi Prefecture, Japan.
Hence, despite the record outlook by the International Grains Council for world total grains production in 2021/22 estimated at 2287 million tons (compared to 2212 million tons a year ago), the global consumption this year is also record high at 2290 million tons (2226m last year) and end stocks 2021/22 are predicted at 600 million tons (602m last year).
A couple of years ago the grain markets could have been touted as relatively flat and predictable. Nowadays industrial users around the globe, such as millers, animal feed compound producers, crushers and the like, are coping with unprecedented volatility, with grain prices sharply up this crop season. At the same time, prices of other commodities are also moving higher, including energy, which affects production costs, as well as the price of farm inputs such as fertilizers and plant protection products.

Speaking of fertilizers, let’s look at the benchmark NPK - global fertilizer demand weighted index for N (Nitrogen), P (Phosphorus) and K (Potassium), which are three essential nutrients for plant growth. NPK index is ending 2021 with a bang. Is it a harbinger of further input increases for 2022? Crystal ball would come handy for prediction purposes as NPK index has exceeded boldest expectations and, yet, keeps going like an Energizer Bunny. Citius, altius, fortius! or, could it be that an imminent correction is forthcoming?

In the meantime, grain market players turn attention to the new crop. Jordan, the second largest buyer of wheat, is already buying new crop Romanian wheat for June 15 delivery knowing that the new Romanian crop is quoted 10-15 USD/mt lower than other Black Sea origins to attract potential buyers.
The promise of a great new year ahead at the end of the current year is motivating and sows the seeds of right attitude in each and every market player. Besides keeping an eye on the good old fundamentals and closely following the weather and the geopolitical tides, thinking out of the box and trying to come up with good new ideas will give everyone a good chance to be rewarded in the next year. So much for the good intentions. Cheers to another challenging, yet great year ahead!