Two years ago, it seemed impossible to break the Covid record for being mentioned in the press. But today people all over the planet are talking about only one thing - whether there will be a war. Even Churchill said that Britain need to shake hands with Russia as far east as possible. Well, it is impossible to find the eastern east than Ukraine.

Russia and Ukraine provide almost a third of the world's wheat export potential. At the same time, Russia exports about half of its production, because domestic consumption is very high. Food inflation does not make the government more successful in the eyes of the population. This season Ukrainian record crop could reach 32-33MMT with more than 25MMT exports facilities, Russia expects around 76-77MMT with 34MMT exports. Therefore, Russia has introduced duties and quotas in an effort to keep the domestic price. 

Today, the grain market has lost its former growth rates and there is hope for price stabilization after a rollback from multi-year highs. With the stock-to-use ratio of the world's major exporters already approaching or at an all-time low following unfavorable drought seasons for some producers and stockpiling during buyers' lockdowns. Any disruption to export flows, however short-term, will lead to a sharp rising prices. A new wave of price hikes in the event that Russia intensifies hostilities, which is undoubtedly not fully taken into account in the current price, certainly does not play into the hands of the Russian authorities. 

In addition, Ukraine and Russia have several common sales markets, which will be faced with the question of the possibility of trade if Russia finds itself under more significant sanctions than it is today. Turkey, Egypt and a number of other markets that are strategically important for Russia can shift the issue from a trade to a political plane. And given that there is not much time left until the end of the season, and some markets are already being actively explored by competitors, the issue of foreign exchange earnings from wheat trade may become more acute. 

Most of the Ukrainian wheat is destined for the countries of the Middle East and Africa, and partly for Southeast Asia, which are highly dependent on imports because their production is limited in them. Ukrainian grain in these markets won due to the price. These markets are not the most solvent, and bread is traditionally the basis of the population's diet. Global food security is a major concern if Ukraine's exports are disrupted and it will be difficult to replace them with wheat of a different, more expensive origin - some countries simply don't have the money to do so. Argentina and Australia, larger than expected, are already offering wheat in markets they weren't familiar with, but not everywhere – sometimes they are too far or too expensive.

Same time French wheat needs to be more price-competitive to win new export markets as Algeria changed the terms of its tenders to allow Black Sea grain amid a diplomatic row with Paris. At the same time, deliveries to Morocco increased. The European Commission on January 27 revised its forecast for soft wheat stocks in the European Union upward due to a sharp increase in imports. The Commission forecasts soft wheat inventories to reach 13.3 MMT at the end of the 2021-22 marketing year, a four-year high and up from a December forecast of 12.9 MMT. As of January 27, crops in most regions of production were in a satisfactory condition. In the Black Sea region, the temperature exceeded the norm. 

China, the world's largest wheat producer for many years, is forecast to harvest 137MMT in the 2021-22 marketing year, according to FAS. However, while production has been relatively stable in recent years, consumption jumped to a record 150MMT last year, up 24MMT from the previous high in 2019-2020. Only a slight decrease is forecast for this year, as consumption is projected at 148.5 MMT. China announced earlier this year that it will be almost self-sufficient in staple grains like wheat and rice by 2025.

Today, on the paper market and exchanges, wheat clearly looks more overbought compared to corn and soybeans, and traders do not give up hope for a weakening of the escalation of the conflict by Russia, so stock quotes are in a downtrend. Activity in the physical market is traditional for the current period of the season, and many importers have taken a wait-and-see approach in anticipation of the data on the state of winter crops and plans for spring sowing in order to start trading the new crop more actively.

VEGOILS MARKET

From the oil market, we have two headaches, except for oil: the palm oil market and the threat of crop failure in South America. And the icing on the cake can again be Russian threats of another encroachment on the borders of Ukraine - apart from Russia and Ukraine, there are no more significant players in the sunflower oil market.

Bursa Malaysia Futures and all of its subsidiaries will be closed from 1 to 3 February for Malaysian Federal Territory Day and Chinese New Year holidays. In China, the Dalian Commodity Exchange remained closed for the Chinese New Year.

On the CBOT, soybean oil futures edged lower as fresh contractions in the Malaysian palm oil futures market and increased profit-taking ahead of the start of the new month outweighed higher crude oil prices.

The Indonesian Palm Oil Association (Gapki) estimates that Indonesian palm oil exports will fall to 33.2 million tons this year, down 2.9% from 2021. However, a reduction in fertilizer use due to scarcity and higher prices is expected to impact crop yields and output this year. Extremely wet weather earlier this year will also affect production throughout the year.

Meanwhile, Malaysian export data continued to show sharp declines as cargo surveyors, ITS and Amspec reported a 27% month-over-month decline in crude palm oil exports in January. The issue of labor shortage remains acute. Higher-than-expected domestic consumption this year, driven by stronger biodiesel demand coupled with lower production growth, contributed to lower export forecast for 2022.  

Brazilian soybean production estimates have been lowered again to 128.5MMT as crop losses in the southern states and parts of the central-west region continue to be accounted for, local consultancy Agrural said on Monday, and this may not be the latest revision to the forecast. Agrural showed that as of January 27, 10% of soybean acreage had been harvested, up 8 points from the harvest rate seen at the same time in the previous year. According to local consulting company Safras & Mercado, Brazil's soybean harvest as of January 28 was 11.3% as of January 28. The soybean area in Brazil is estimated at 40.8 million hectares, and production is expected at 132.3 million tons. Soybean harvest in Brazil's largest producing state, Mato Grosso, reached 31.8% as of Jan. 28, IMEA said. According to a December report, Mato Grosso is expected to produce a record soybean crop of 38.1 MMT this marketing year.

The Brazilian Association of Vegetable Oil Producers (Abiove) for the second time this month lowered its estimates of soybean production in Brazil due to drought. Brazilian soybean production is expected to reach 135.8MMT, down 4.2MMT from previous estimates. Abiove also cut its 2022 soybean export forecast from 91.1MMT to 86.9MMT. However, refining remained unchanged at 48MMT, up 1.5MMT from 2021, when refining is expected to reach 46.5MMT. AgResource Brasil sees production at 125.04MMT.

Soybean acreage in Argentina has been reduced again to 16.3 million hectares, according to a BAGE report. This figure is 100,000 hectares lower than the previous forecast, with most of the reduction recorded in the northwest of Argentina. Soybean planting is 94.8% complete, 4.9 percentage points higher than the previous year, but 5.2 percentage points less than the average for the past five years. BAGE rated 38% of space as good or excellent, up 8 percentage points from the week, while normal space estimates remained unchanged at 43%. Areas rated as average or poor decreased by 8 percentage points to 19%, reflecting the region's rainfall.

Soybeans in Paraguay ripened under extremely unfavorable conditions. Hot and dry conditions force the soybean growth cycle to end prematurely, and the soybean yield is approximately 40-50%. Crop losses are expected to be 50% or more across much of southeast Paraguay, according to Soybean & Corn Advisor.

Oil World estimates that the cumulative soybean crop for the current 2021/2022 season in Brazil, Argentina, Paraguay and Uruguay will decline to around 186.3 MMT, down 7.4 MMT from last season and a four-year low. USDA estimates them at 196.6MMT. 

We are too distracted to discuss one huge piece of news. But we must not forget that there are other factors that affect the price. And although prices fundamentally depend on the balance of supply and demand, but given that the world is tired of quarantine, weather disasters and conflicts, we are increasingly reacting to any news, making the market more and more volatile. Sometimes it seems to me that before the advent of the Internet, life was much calmer and easier.