On Monday afternoon, March 14, reports were released that Russia will ban the export of wheat, maize and barley, among other things. This has direct consequences for the commodities markets, which traded just a few euros lower on that day.
The May contract on the Matif opened €4,25 lower Monday morning and fell further in the morning to €362,25 per tonne. When rumors emerged around 15:30 pm that Russia may be stopping grain exports – which should start on March 15 – an immediate turnaround was made. At the time of writing this article, the Matif is trading €13,25 higher than Friday's closing price of €384.
Export ban coming
The source of the news appears to be the Russian news agency Interfax. Which says documents from the Ministry of Agriculture and Economic Affairs proving a temporary ban on the export of grains. The last trading period of the Russian export season runs from March 15 to June 30. The ban would apply to wheat, maize, barley, rye and more grains, among other things.
True or not, the market reacts instantly with a U-turn in the prices. The rate of the June contract for grain maize on the Matif is unchanged at €349 per tonne. The August contract is slightly higher. The American CBoT is also green. Wheat is up 1,5% Monday afternoon and corn is down 2,5%.
Two scenarios
The grain market has – or rather should have – two major 'what if' scenarios looming over its head. One is an export ban from Russia on grains. The other is a situation where farmers in Ukraine will not be able to fertilize, spray, sow and plant this spring. This not only has a global impact in the short term, but also in the longer term. Harvest year 2022 will then be a lost year for Ukraine, with consequences that are felt worldwide.
The question is not whether the sector in the country will be hindered, but more by how much. Fuel goes to the military, workers are afraid to stick their heads out the door (or they're fighting) and everything is chronically short. In most parts of Ukraine it is still very wintery with temperatures as low as -20 degrees. Nevertheless, fertilizer is already being applied where possible.
Spring with flaws
The sowing period is only short and then you have to be there. Something that the Dutch entrepreneur Kees Huizinga – the 'envoy' of agrarian Ukraine to the west – makes clear everywhere. The country has a relatively small acreage of spring wheat (95% is winter wheat), but grain maize, sunflowers, soybeans, sugar beets and more will have to go into the ground in the coming weeks. There is no such thing as working 24 hours a day. Tractors with lights are fired at night in the field by Russian troops, he reports on social media.
It is difficult to estimate the exact consequences for the current grain market. Initial forecasts are based on a 15% yield loss for wheat, but farmers surveyed are more likely to say 50% if they cannot fertilize and spray. The consequences are then incalculable. Especially in African countries that are heavily dependent on the import of wheat from Ukraine.
China is adding fuel to the fire
Even if there is a reasonable harvest, it remains to be seen whether it can be exported as usual. Do shipowners allow their ships to dock in Ukrainian or Russian ports and do countries want to trade? Russia can count on one major buyer: China. This country is keeping a low profile when it comes to conflict. At the beginning of March, it announced that it expects a very small wheat crop. The country produces about 134 million tons of wheat. That is almost a fifth of world production. But due to an extremely wet autumn, 10% of the acreage was not sown.
In its own words, China has enormous reserves. It would hold 50% of the world's wheat stock. Analysts are increasingly doubting this. It is clear that the Chinese government will pursue an aggressive sales policy in order to have sufficient grains available. In the current heated market, that is throwing oil on the fire that can push the wheat price even further.