Ukraine and harvest figures are two important forces in the grain market. But there are more factors. For example, active monetary policy is being conducted through the grain market while other countries are increasingly concerned about affordability.
The grain market shows a mixed picture. In Europe, the Matif closed lower for the weekend while the CBoT closed in the plus. The US stock market is closed today for the Labor Day holiday. The Matif is open and the quote mainly moves sideways while writing this article on Monday afternoon.
The drought and grain exports from Ukraine continue to haunt the grain market in the US and EU. This also applies to South America, but there is something more to it. Argentina uses the grain market as a means to influence the inflow and outflow of hard foreign exchange. In Argentina, soybean exports are lagging behind last season this season. One of the reasons is high inflation. Farmers would rather hold onto the product for a while than convert it into rapidly declining pesos. The Ministry of Economic Affairs therefore announced an improvement in the exchange rate until September 4 with immediate effect yesterday (Sunday, September 30). For Argentina, the influx of hard currency - which comes in with soy exports - is desperately needed to meet its financial obligations to the IMF. Farmers' organizations are extremely critical of the government's proposals. In the first place, the term of less than a month is very short, fear the interest groups. In addition, they warn that only a small group of large companies will run off with the support if things go wrong.
Inflation
In Brazil, rising inflation is causing less demand for wheat. In July, wheat imports hit their lowest point since 2017, according to government data. In August, according to provisional data, wheat imports are 9,7% lower than in the same month a year earlier. The price averaged $441 per tonne last month. That was $2021 per tonne in August 276,30. Brazil is working hard to increase its own wheat production. This season, 10 million tons of wheat are expected to be harvested. Wheat produced domestically is only more expensive than foreign wheat, the director of a market agency told Reuters. Consumers have difficulty paying for wheat-based products such as bread and pasta.
Iraq announced on Sunday 4 September that it would import extra wheat to reduce its dependence on expensive flour from abroad. The Ministry of Commerce says it is applying new mechanisms for this. What that exactly entails is not explained in more detail. It is clear, however, that no wheat was bought in a tender in August. Instead, Iraq does business directly with suppliers. A tactic that is comparable to that of Egypt, for example. Iraq imports approximately between 4,5 and 5 million tons of wheat annually. In July, the country announced that it was in the market for 1,5 million tons of wheat to cover its expected consumption in the first months of the new year. It is unclear whether and how this will change due to the decision to import less flour.