We have to be ready: grain equilibrium

03 September 20228 min reading

From the one hand Ukrainian crop entered market via grain corridor increasing global supply making bread cheaper for everyone – doesn’t matter in which country you are. In August more than 60 vessels delivered 1,5MMT from Ukrainian Greater Odesa ports. From another hand, war still not over, farmers are not sure they will plant winter wheat and will exports reach target volume in 5-6MMT/month and weather all over the world brings uncertainty and supports price. Abducet praedam, cui occurit prior. We have to be ready.

Elena Faige Neroba
Business Development Manager

US agricultural markets ended another good week with big gains after realizing some of the problems with crop production in the US, Europe and China caused by the heat and associated drought that took place during this summer. Parts of north-central Texas did not record any measurable rainfall for more than two months, the second longest dry spell, dating back to 1898. However, this week's rain was the second-heaviest rainfall in 24 hours, and interrupted data transmission, causing the weather service to be unable to fully update the drought monitor for this region. 

U.S. corn yields could be hit this year by prolonged heat and drought, while soybean crop remains promising, Pro Farmer 2022 U.S. crop tour final estimates show.

The Chinese Ministry of Water Resources has claimed 22,000 square kilometers of arable land and 350,000 livestock, but the ultimate impact is likely to be much larger. In the meantime, the government is urging farmers to replant or change crops where they can, harvest and store rice, and take action to boost grain growth in the coming weeks, recommending a switch to late fall crops.

The condition of crops in the US deteriorated as expected, the rating gd / ex fell by 1 point to 55%. Rainy weather is likely to continue across much of the Corn Belt for a few more days. An 8-14 day forecast predicts a return to seasonally dry conditions for the northern third of the country between Sept. 2 and 8, with warmer-than-usual conditions extending to the plains, western Corn Belt, and upper Midwest.

Argentina 2021/22 corn harvest completes cumulative corn production at 52MMT according to the Buenos Aires Grain Exchange, higher than the USDA forecast. Dry weather supported Brazil's second corn harvest, which reached a 94.2% completion rate last week in central-south Brazil, Agrural said. That said, 5.1% of the estimated 2022/23 corn area was planted as of Thursday, compared to 1.8% the previous week and slightly below the 5.3% recorded at the same time the previous year. Conab is forecasting a total of 125.51MMT in Brazil's corn crop next season. Anec estimates that corn exports from the country will exceed 7.5 MMT in August. This is 7.3% lower than the association's previous forecast made a week ago. According to market participants, ~ 43MMT of corn harvest 21/22 is left in the sale.

The European Commission cut its monthly European Union corn production forecast by 10% on Thursday to 59.3MMT. If realized, it will be the smallest corn crop in the European Union in seven years. Some of the shortfalls in corn could be made up for with feed wheat, and some of the demand would be lower due to lower consumption by livestock farmers. 

US corn weekly export checks are down 16% from the week to 689kMT for the week ended Aug. 25. The weekly inspection figure was within the lower range of analysts' expectations, which was set between 650,000 and 850,000 tons ahead of the report. The total volume of weekly inspections in the marketing year since the beginning of the current year is 54.59 MMT, which is 17% less than 66.05 MMT in the previous marketing year.

The euro's sharp rise against the dollar put pressure on Euronext before the euro eased gains in volatile trading marked by comments from the head of the US Federal Reserve. Dealers said that technical adjustments related to the upcoming expiration of September futures, as well as demand from consumers who took advantage of the earlier fall, helped Euronext strengthen. European weather forecasts showing more rain this coming week have also eased concerns about upcoming plantings.

In the US, 95% of winter wheat was harvested by August 21, down 2%, mostly in PNW states. Spring wheat continued to lag this week, with harvest 33% complete, 21% below normal. U.S. weekly wheat export checks are down 12% to 520,791 tons in the week ended Aug. 25. This figure was below the range of analysts' expectations, which was set between 450,000 and 650,000 tons prior to the report.

Agriculture and Food Canada (AAFC) said this week that yields were higher than expected, prompting it to revise its August forecasts upwards. In the 2022/23 season, total wheat production was increased by 0.8 MMT to 34.5 MMT (21.7 MMT in the previous year), while exports increased by 0.6 MMT to 23.0 MMT (15.0 MMT). Statistics Canada estimates Canadian wheat production at 34.MMT, up 55.1% from last year and 600,000 tons more than traders expected. The increase in expected total wheat production is mainly due to spring wheat.

The Buenos Aires Grain Exchange in Argentina reported that 79.9% of the wheat crop is in "normal to good condition". Harvesting will start in November on 6.1 million hectares, down from the 6.7 million hectares planted last season.

Brazilian milling association Abitrigo estimates that the country's wheat production could reach 10MMT, well above government estimates of 9MMT. Brazil is currently a net importer of wheat, but growing acreage and potential yields will make it self-sustaining within five years.

The German wheat harvest was better than expected, with the winter wheat harvest estimated to be up 4.6% from 2021 to just over 22 MMT, the agriculture ministry said. FranceAgriMer said French soft wheat protein levels will be lower compared to last year. The agency said almost complete quality results showed that 27% of French soft wheat contained less than 11% protein. 

India's Сabinet on Thursday approved a policy to restrict wheat flour exports to lower prices in the local market, the government said in a statement. Despite the government's official position, the market expects Indian wheat imports in a few months.  In Australia, prices for feed wheat, barley and sorghum fell this week to prices most producers are unprepared for, while consumers cut back on their purchases in hopes of falling further.

Bangladesh is considering importing about 500kMT of milling wheat at $430/tonne under an intergovernmental agreement with Russia and could sign an agreement earlier this week. This is close to the volume of Bangladesh's imports from Russia for the entire 2021/22 marketing year - 495kMT. Bangladesh to increase wheat imports in 2022/23 to 7MMT, nearly 8% more than last year, according to USDA.  Gasc is buying wheat at a good pace: they have already booked 2.79 MMT on 22/23 against 1.61 MMT last year. In the current season, purchases of mainly Russian wheat often take place without tenders. 

Pakistan as well looks for Russian wheat to make up for flood-hit crops. There were rumors that Algeria bought Russian wheat on tender as well. In Russia, Rusagrotrans analysts estimate a decline in wheat exports (including the EAEU countries) in July-August by 25%, to 5.7 million tons compared to last year. The Russian Union of Grain Exporters, for its part, expects wheat sales in the country in July-August to fall by 20% compared to last year. The union cites "invisible barriers" and other logistical problems despite the lack of sanctions following the Russian invasion of Ukraine. The total volume of grain production in Russia in 2022 may reach 145MMT, which will allow exporting 55-56MMT, Prozerno said. Export of wheat may reach 44MMT. Carryover stocks could increase from 14-15 MMT to 19.5 MMT, domestic grain consumption will rise this season on the back of increased demand from livestock. In Russia and Ukraine, there are problems with the quality of the first batches formed for export from the new crop.