Ukrainian President Volodimir Zelensky is on an official visit to Poland today. Not great news for the grain market, you might think, but the visit coincides with the resignation of the Polish Minister of Agriculture, who fiercely opposes the import of grain from Ukraine. This exposes the dilemma in which several eastern EU member states find themselves. Looking at the new growing season, it is striking that both the USDA and the European Commission are quite optimistic about acreage and/or yields. The market just seems less certain about that.
The May wheat contract on the Matif gave up €1 yesterday to close at €255,25 per tonne. On the CBoT, wheat also showed a small correction, falling 0,3% to $6.91½ per bushel. Corn and soy also took a small step back by 0,6% and 0,3% respectively. Trading on the futures markets can therefore be described as relatively flat. The market is still having some difficulty processing the data flow that has mainly come from the USDA in recent days into prices.
However, apart from reports from the Black Sea region, the news on the grain market is already dominated by reports about the upcoming 2023 harvest. Speaking of the war in Ukraine, President Zelensky arrived in Poland today for an official visit to Warsaw. The program includes meetings with Polish President Duda, Polish politicians, Ukrainian refugees and Polish citizens. This is Zelensky's first official visit to Poland since the Russian invasion more than a year ago. Zelensky has been to Poland several times in the past year, but that was in transit to or from other destinations. Poland is taking a leading role when it comes to, among other things, military support to Ukraine and the reception of refugee citizens.
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In some areas, support for Ukraine in Poland is eroding. In Poland there is increasing resistance to the import of relatively cheap grain from Ukraine. Last Friday it was announced that Poland, together with other Central European countries, is calling for import restrictions on agricultural products from Ukraine. However, this call is rarely heard in Brussels. The European Commission wants to extend the duty-free import of grain from Ukraine until June 2024. Polish Minister of Agriculture Henryk Kowalczyk has therefore announced today (Wednesday, April 5) that he will resign from his position. "It is clear that our demands on this point are not being met by the European Commission. I have therefore decided to step down as Minister of Agriculture," Kowalczyk said. The influx of grain from Ukraine is a headache for the ruling right-wing conservative PiS party of which Kowalczyk is also a member. Elections will be held in Poland this year and the PiS party, which has its electoral base in rural areas, is under fire, partly because the influx of grain from Ukraine is putting pressure on sales prices for Polish farmers.
Optimism or realism?
The most traded contracts on the Matif and CBoT are still those relating to the 2022 harvest. In recent days, the USDA has released area expectations and the first Crop Progress report, which concern the upcoming harvest. Of course, we are still very early in the growing season, but with the increased wheat and corn acreage in the US, the USDA is sending a bearish signal to the market. The European Commission gave a similar signal or with the above-average yield forecast in the March edition of the Mars bulletin. The effect on the grain market and especially the wheat market is that the bottom is being sought.
However, several analysts point out that the market could sometimes overreact. Southern Europe in particular was extremely dry last season and various sources report that the water supplies needed for irrigation have not yet been fully replenished everywhere this season. Drought was also a major problem in parts of the US and there too, insufficient snow and rain fell last winter to replenish the moisture supply in the soil in the wheat belt. Only 28% of wheat acreage received good or excellent status from the USDA earlier this week. The fact that players in the wheat market are not so sure of high returns is becoming cautiously clear on the futures market. Particularly on the Matif, it is noticeable that a certain risk premium is being built up again in the contracts for the new harvest.