The Metal Rat year 2020 will stick in our memory as extraordinary. Mass media is shouting about deep global recession as coronavirus crisis escalates. Our life is full of stamps, terms&phrazes, like #StayAtHome, lockdown, stocking up, home cooking, solitary confinement, quarantine, self-isolation, COVID-19…

Christina Serebryakova Head of Analytical Department & Agricultural Commodities Broker

The Black Swan hits the Metal Rat The beginning of the second half of the season 2019/20 (January-February 2020) for the Black Sea wheat prices was expected to pass in upward to stable mood. However, when at the end of January 2020 news headlines started shouting about COVID-19, sellers were not ready for it.

They were waiting that until end of February or even March they have time to “ride high”. Nevertheless, the picture changed dramatically. On 11 March, 2020, COVID-19 was confirmed as pandemic by World Health Organization.

Thus, after reaching its pick of $233/MT FOB pport on 24 January 2020, 12.5 pro Russian wheat prices lost about $25/MT during February and half of March and were shown at $206/MT FOB pport on 13 March 2020.

Traditionally, Ukraine and Russia give way to American, European and Argentinean wheat crops in the second half of the season. 2019/20 MY, in a contrast, was noted with a record 2019 Ukrainian wheat crop, as well as wait-and-see strategy of Russian farmers.

Both exporting nations had enough stocks for active export in the second half of the season. Seemed that their plans to sell at good prices collapsed in a flash of an eye.

From the other side of cash register

Picture changed dramatically, when virus reached exporting nations – the Black Sea and Europe. Just within two weeks after coronavirus was confirmed as pandemic and quarantine was introduced since mid-March in most European countries, offers of Russian 12.5% protein wheat jumped by about $20/MT and totaled about $225/MT FOB pport as of 03 April. Price rally was accompanied with the absence of sellers on the market. They “self-insulated”, waiting how high the prices could climb, as well as how the local authorities will regulate the markets. Again, force majeure played a cruel joke, but this time with the buyers of wheat, who waited for prices to go down further. Valerii Liulchenko, Grain Broker, Co-Founder Atria Brokers: #stayathome #breadmaking

Mountain out of a molehill: supply concerns

Both Ukraine and Russia hurried to protect their nations from starvation, which sounded quite scary.

On 30 March, Ukraine signed the Appendix to its annual traditional Memorandum, which this time established the maximum volume of Ukrainian wheat exports in 2019/20 MY at the level of 20.2 MMT vs LY’s 16 MMT [meaning 2.2 MMT will be shipped in April-May-June].

It is very important to underline, that 20.2 MMT is the same volume, which traders planned, when memorandum was signed in autumn 2019. Thus, nothing extraordinary.

As well, in the beginning of April, Russian government officially approved the AgMin’s proposal to set up a 7.0 MMT grain export quota for April-May-June.

Again, roughly those volume, which the country would have exported in that period regardless to the introduction of the quota.

Panic buying in the MENA region

Since 11 March and until 06 April, MENA region and Turkey bought within international tenders about 1.8 MMT of wheat. It is about 40% more vs. 1.25 MMT during the same time last year.

Such a jump was due to raise in purchases of durum wheat by Algeria and Tunisia. The latest one is in the anticipation of bad local crop 2020.

Buyer’s protection

In a bid to limit the influence of high prices and assure enough supply, after COVID-19 was confirmed as a pandemic, importing countries took measures to assure enough domestic supply.

Morocco decided to halt import duties on soft wheat, durum and grains. Egypt eyed increasing strategic staple reserves to from 3-4 months to 6 months.

Brazilian mills were pushing to scrap wheat import tariffs amid pandemic. Meanwhile, Saudi Arabia was asking their private sector to import 355 KMT of wheat.

According to Bloomberg, Lebanon’s government is considering importing wheat for the first time since 2014 (about 80 KMT), weighing its dwindling supply of dollars against concerns that the coronavirus may threaten the nation’s food security. More efforts to follow…

Until the end of May wheat market sounds to stay under the influence of the COVID-19, after which the weather factor should reclaim its authority. We are carrying on our tradition of giving pros and coins.

Below is a range of factors, thus readers could themselves decide on which side of a price trend they are.

[box type="shadow" align="" class="" width=""]Bull • The EU is expected by Strategie Grains to harvest lower soft wheat crop 2020 of 136.7 MMT (-9 MMT y/y) as acreage was cut on autumn rains. • In spite of the fact that winter wheat acreage in the U.S. is the lowest over the past 111 years, total wheat acreage 2020 is forecast by the USDA at 44.655 mln acres, - 0.5 mln acres y/y (-0.2 MLN HA). Thus, the harvest of American wheat in 2020/21 MY, according to the estimates of individual analysts, could amount to about 50 MMT, -2.3 MMT against 52.3 MMT in 2019/20. • UGA forecasts Ukrainian wheat crop 2020 at 25.8 MMT vs 28.2 MMT LY (-2.4 MMT y/y). • FCStone noted in April 2020, about “the talk of coronavirus-related export restrictions especially in Russia”. • Logistical obstacles. • A labor shortage in India due to 21-day lockdown could disrupt harvesting of winter crops, incl. wheat. • Planting risks for spring wheat in Russia and the E.U.[/box] [box type="shadow" align="" class="" width=""]Bear • The second largest wheat crops in 2019/20 MY in Argentina and France • Continued shipment of a record Ukrainian crop 2019/20 • Russian crop 2020 is expected at 82 MMT (Informa) - 84.4 MMT (SovEcon) (+7.5+9.9 MMT y/y), which is the 2nd highest ever, or even could become a new record after gathering 85.2 MMT in 2017/18 MY. • ABARES so far forecast 2020 wheat crop in Australia 21.3 MMT (+5.6 MMT y/y). • FCStone noted, the USDA rated the national winter wheat crop at 62% g/e in their initial spring U.S. report, +10% from the final fall figure and +2% y/y, above the 49% 5YA. • India is heading for a 4th consecutive record wheat harvest, with 2020/21 (Apr/Mar) production forecast at 105 MMT by FAS USDA.[/box]