The prohibition on Ukrainian grain exports according to Alexander Gabuev, a senior fellow at the Carnegie Endowment for International Peace, had two objectives: 1) Economic strangulation, denying Kyiv a significant source of financial flow; 2) Increasing pressure on the West by creating a crisis (refugee flow from the MENA, etc.) and then blaming sanctions.

This strategy has frightened Russia's allies in the MENA region, including diverse players like Turkey, Egypt, Saudi Arabia, Israel, and Iran, among others, who would have been negatively impacted politically and economically if flows of grain and fertiliser were considerably reduced. The communication between Moscow and the regional capitals has included both announced (Lavrov's trip, Putin's phone calls, etc.) and undisclosed signals that the food crisis may have huge repercussions for the entire area and that instability can reach Russia as well. The requests from important MENA partners, especially Turkey, which now acts as the main formal and informal channel to connect sanctioned Russia to the outside world, including diplomacy, trade, money, and even yachts, are largely to blame for Moscow's U-turn on the grain problem.

Turkey will be one of the hubs for grain from Russia and Ukraine. Turkey's pragmatic and high-intelligence strategy has positioned Ankara well to be the influential mitigator. Financial considerations also play a role in the Kremlin's motivations, as the sale of grains and fertilisers will be a significant source of income for Putin's war chest in the face of the impending EU oil embargo and the substantial discounts Moscow must offer to Asian customers, among other factors.

While not formally a part of the Istanbul process, US and EU efforts to lessen sanctions risks and clarify procedures for transactions on Russian grain and fertilisers for shippers, insurers, bankers, etc. are ongoing in parallel and have been a Russian prerequisite. It's crucial to remember that money from grain and fertilisers will go to some influential figures in Russian government.

Finally, beyond grain exports, Moscow still has a variety of sharp weapons in its toolbox for waging its geoeconomic war against the West, with gas being the most potent.

All bullish factors seem to have been exhausted at first glance, and the market is encouraging bearish sentiment:

• The strongest dollar since 2002 was clearly deflationary;

• Brazil harvests a huge crop of safrinha;

• Agreements were signed in Istanbul, which should increase the volume of exports of Ukrainian and Russian grain.

Meanwhile, Russian Foreign Minister Sergei Lavrov, during a visit to Cairo on Sunday, offered assurances about Russian grain supplies to Egypt amid uncertainty over a deal to resume Ukrainian exports from the Black Sea.

Ukraine made efforts to restart grain exports from its Black Sea ports as part of a grain deal brokered by Turkey and the UN a day earlier, but warned that supplies would be hurt if a Russian missile attack on Odessa was a sign of something more. On Thursday, July 28, the first technical wiring from the port of Chornomorsk is scheduled.

However, shipowners are in no hurry to offer vessels for Ukrainian ports. The only activity on the market is the WFP UN tender for 1-2 cargo up to 30k food wheat for August. The seaports of European ports are busy, and the weather conditions of the Northern Hemisphere are unfavorable. China is active.

The Baltic Exchange's main shipping index rose last Friday as rates rose across the ship's component segments. However, the index posted its worst week since the end of June, falling 7.6%. In this deal a lot will depend on willingness from the shipowner’s side to provide vessels, and how much this risk will cost.

Stable harvesting rates in the Black Sea and the Istanbul agreement are weighing on stock prices, but heavy EU line-ups and risks in the Black Sea suggest that the market may turn around soon. France and Romania oversold for August and September. 

China has been active in the wheat market. Specifically, traders reported purchases of around 1m tonnes of Australian wheat for both animal feed and milling during the September-March shipping period. In addition, this week China bought at least two shipments and possibly seven shipments of French wheat for shipment between September and November, they said. The French purchase included low-quality wheat with a protein content of 10.5% for at least two batches. French wheat exports tripled to 119,000 in the week of July 20, with all exports going to Morocco.

The lowest price offered in the tender from Pakistan for the purchase of 200,000 tons of wheat, which ended on Monday, was $407.49 per ton C&F. On July 21, TCP purchased 300,000 tons of wheat in a previous tender at a price of $404.86. Meanwhile, Russia exported 540,000 tons of grain last week, up from 500,000 tons the previous week, according to the port. According to IKAR, Russian prices for wheat with a protein content of 12.5% and delivered from the Black Sea ports at the end of last week fell by $5 to $355 per ton FOB. According to Sovecon, wheat prices for urgent delivery were at the level of $350-355 per ton against $355-360 a week earlier. Vessel calls at deepwater ports decreased by 7% compared to last year. Potential financial and reputational risks of trade with Russia, duties and an artificially strong ruble have reduced the competitiveness of Russian wheat. Market players say Pakistan is contracting French wheat, making France's lineup even tighter. 

In Kazakhstan, the wheat harvest in 2022 will be 13.0-13.5MMT, which is 15% more than last year, Agriculture Minister said on Tuesday. With domestic consumption forecast at 6.0MMT, the rest will be available for export, he said at a briefing. Local agricultural associations called on the government to ban the import of various types of grain, as well as flour and sunflower seeds from Russia by trucks. This measure will reduce the illegal import of Russian grain into Kazakhstan. 

Weekly reports from the USDA were positive both in terms of the pace of the harvest and the condition of the wheat. The completion of the US winter wheat harvest was below analysts' forecasts and lagged behind the previous year's level in the week ending July 24 in the USDA's latest update released late Monday night. The winter wheat harvest was 77% complete compared to 70% last week, below the 82% achieved in the same week in 2021 and 3 percentage points below the 5-year average of 80%. The completion rate for the winter wheat harvest is lower than expected by analysts, who had forecast 79%.

The USDA export sales report indicated that the previous week's sales increased significantly, but still stood at 511,100 tons. Year-to-date sales commitments are 7,647MMT, covering many international buyers. The average pace of US wheat exports since the beginning of the season was low, despite the fall in futures. Buyers are also looking to capitalize on the declining trend in wheat prices, but the price of US wheat is still $40/ton above world prices. Many farmers, on the contrary, have a lot of storage on the farm and do not want to sell in the near future. Hot weather before harvesting other crops and planting winter wheat creates a "wait and see" policy for many farmers.

In Canada's latest agriculture report, the 2022/23 wheat production forecast is raised by 0.6 MMT to 33.7 MMT (21.7 MMT in the previous year). The forecast for rapeseed production was increased by 0.4 MMT to 18.4 MMT (12.6 MMT in the previous year) and the forecast for barley production was reduced by 0.2 MMT to 9.1 MMT (6.9 MMT in the previous year) .

Rain in the main agricultural regions of North America last week added to the bearish pressure. For the period July 12-18, 2022, Sask Ag rated spring wheat at 74% Gd/Exc., 22% fair and 4% poor. Alberta Ag rated spring wheat at 83% Gd/Exc. Sask Ag rated durum wheat at 58% Gd/Exc., 32% fair and 10% poor to very poor. Alberta Ag rated durum wheat at 64% Gd/Exc. Meanwhile, Canada's weekly wheat exports were low in week 49 at just 133,000 tons, with a year-to-date total of 10.5 MMT compared to 18.8 MMT a year earlier.

The Grain Exchange of Buenos Aires Argentina reported that for 22/23 wheat planting was completed by 97% on an area of 6.1 million hectares. This means a 100,000-hectare reduction in wheat planting area in Argentina, and is now 0.5 million less than forecast at the end of May.

US corn planting health is 61% good to excellent, up from 64% last week and 64% last year. Analysts had expected corn crops to be at 61%. However, StoneX yield forecast models show that the potential for US corn does not exceed 174 b/a (our forecast is 172-174, USDA 177). This could lead to lower than expected production levels. 

Argentina's BAGE reported that the corn harvest is 67.2% complete, 8 points below the 5-year average. Production is still estimated at 49MMT. The Argentine government is considering creating a separate peso-dollar exchange rate for the country's agricultural sector to encourage farmers to sell, which is lagging behind last year's levels, local media reported. The unfavorable exchange rate has been cited as one reason for farmers' reluctance to sell despite high world commodity prices, with the official peso/dollar exchange rate well below the unofficial market rate of close to 200 pesos to the dollar. Any such measure aimed at establishing an intermediate exchange rate between the official rate and the black market rate has not yet been approved by the President.

This marketing year, Brazil is set to harvest 87.3 MMT of its second corn crop, up 26.6 MMT from last year, Agrural said. The consulting firm has updated its crop forecasts as it estimates corn harvesting has reached a 62% completion rate in central and southern Brazil on Thursday. This is up from 52.7% the previous week and 39.3% at the same time the previous year. However, lower temperatures and some rain may increase grain moisture levels in the coming days, limiting fieldwork. Brazil's corn exports were 508,000 tons per week on Monday at 5.99MMT, up 2.67MMT or 125% from last year. Brazilian farmers are expected to increase their soybean and corn plantings by 500,000 ha to 1 million ha in the 2022/23 season, Datagro said. Brazil planted 41.6 million hectares of soybeans in 2021/22, up 6.1% from the previous year, and 22.5 million hectares of corn, up 10% from the previous year.

Datagro believes that the prospect of Brazilian corn exports to China in 2023 should not affect producers' plans to expand acreage in the near future. Brazil's agriculture minister said the country is in discussions with the Chinese government to increase corn exports as early as 2022. The phytosanitary protocol signed by both countries requires monitoring of their entire production chain and logistics in accordance with Chinese specifications, making it impossible to export the current crop, which has not yet been done. Such actions speak of China's weak confidence in the possibility of exports from Ukrainian deep-sea ports. 

Recorded high temperatures have caused a sharp deterioration in the condition of EU corn crops, as estimates of crops in good-excellent condition decreased by -8 points compared to the previous week and are still at risk of seeing degradation during the new update.

Indeed, by July 18 French corn was 75% good to excellent, up from 83% the previous week and 90% last year.

The EU Crop Monitoring Service has substantially lowered its expectations for the bloc's spring crops in 2022 amid continued drier-than-usual conditions across much of the continent while ending winter crops have seen little change. at the EU level and remain close to the 5-year average, according to a monthly update published on Monday.

A July report published by the Agricultural Resources Monitor (MARS) shows that high temperatures continue to adversely affect key growing regions of the region. At the EU level, 2022 corn, sunflower and soybean yield forecasts are expected to decline by 8-9%, below the 5-year average. Reservoirs are at very low levels and water availability for irrigation is not sufficient to support the demand for spring crops.

In addition, the high temperatures currently observed and forecast until the end of July are likely to affect crops in the flowering stage, which will reduce flower fertility.

The report notes that there is currently little that can be done to reverse the effects as hot and dry conditions continue to prevail. Meanwhile, high temperatures may soon come to Ukraine, which will also negatively affect the corn crop.

The USDA released its semi-annual cattle report, and numbers as of July 1 point to a downward trend. All cattle stocks were down 2%, with 98.8 million cattle and calves on farms in the US. Drought is likely a factor as producers eliminate herds in the hardest-hit states. In addition, the number of slaughtered animals has increased by 14.5% to date as the eradication continues. Overall, CattleFax predicts a 5 percent downward spiral in 2023. The US cattle population shows cyclical trends about every 10 years. Between 2007 and 2013, the industry saw a decline in the number of livestock, and stocks were low in 2014. The number of cattle reported usually means higher beef prices, prompting producers to expand. There are indications that the impact of the drought on the southern plains intensified sharply in July. The percentage of pastures and pastures in Oklahoma rated as poor and very poor jumped from 18% in early July to 34% in the July 18 Crop Progress Report. Cattle producers are rapidly downsizing as grazing conditions deteriorate rapidly. Finisher volume at auctions in Oklahoma is up 24% year on year in the past two weeks. Similar processes in the EU may intensify due to the "green" policy. Therefore, the feed market, which depends on meat prices, is not so tense now.

Things have gotten a little easier for global consumption as the Northern Hemisphere cleanup has cooled prices a bit. At the same time, supplies are still in a difficult position and can be nervous, even hysterical. Trade grain, not headlines!