Uncertainty over the extension of the grain deal took another turn over the weekend. It was clear that Russia and Ukraine have their objections, but now Poland is also indirectly involved in the discussion. Poland wants import restrictions against Russian grain after the success they previously achieved with measures against Ukrainian grain. In Argentina, when the harvest starts, it becomes clear how bad the drought has wreaked havoc there.
The grain market starts the week hesitantly. On the Matif, wheat contracts are under some pressure. At the time of writing before market close, losses for new crop contracts are down around 1% compared to Friday's close. On the CBoT, closing prices for wheat remain largely unchanged. Corn and soy are in the red, but with a decrease of a few tenths of a percent, it remains within limits.
If it were not so serious, you could almost call the extension of the grain deal between Russia, Ukraine, Turkey and the UN a farce. Ukraine complains, and not entirely unjustly, that the current grain deal has effectively already been stopped. From the first inspection, loading and return for the second inspection, a ship spends at least nine days on average. To prevent unexpected ships from getting stuck after the deal expires on May 18, Russia has already decided to no longer inspect new ships for the grain deal.
Market in motion
Meanwhile, shipowners and insurers are not keen on transports to and from Ukraine. The risk of a ship becoming stuck is seen as real by shipowners. Reuters reports, based on sources in the insurance world, that rates have been stable for several weeks at around 1% of the value of the ship. But war zone coverage does require that the underwriting (similar to a policy) be renewed every week. If the grain deal is not extended and the conflict between Russia and Ukraine continues to flare up, those rates could rise sharply.
Major pain points for Russia include relatively expensive insurance and Russia's more difficult access to the world market. In addition to exports from Ukraine, it has also been agreed that grain exports from Russia will not be hindered by Western sanctions. This is to prevent possible food shortages, especially in Africa. However, Poland added fuel to the fire last weekend. Poland's permanent representative to the EU, Andrzej Sadoś, is calling for a European import ban on agricultural products from Russia. “We believe that sanctions should be imposed immediately on Russian agricultural products, if only because of the problems with the import of Ukrainian products into the EU,” Sadoś told Polish news agency PAP. “Europe is not currently threatened by disruption of the agricultural supply chain. On the contrary. We have a surplus problem with agricultural imports from Ukraine.” According to Sadoś, it is therefore incomprehensible that the European Commission has never made proposals to curb the import of agricultural products from Russia into the EU and explains this as a threat to global food security. The EU has so far approved ten sanctions packages against Russia.
Drought
The first harvest results of corn and soy in Argentina are not very encouraging. About 20% of the soy area has now been harvested and the first yields are below 1,2 tons per hectare. If you extend that line, it would mean a total harvest of 18 million tons, while various market agencies calculate a total yield of around 25 million tons. Corn is not doing much better in Argentina. 36% of the area has been threshed and the first yields remain at less than 4,8 tons per hectare. That would amount to a total corn harvest of about 30 million tons. That's about 7 million tons lower than the USDA forecast in the latest Wasde report.