These are turbulent times on the grain market. The import of cheap grain from Ukraine is dividing the hitherto remarkably united EU. While several eastern member states such as Poland are leading the way with humanitarian and military aid to push back the Russian bear, there is not much left of support for Ukrainian grain exports. With all the news about Ukraine, we would almost forget that the current growing season is far from being according to the book everywhere. The market, however, is only slightly impressed by this.
The wheat market started the week in the green. At the time of writing this article, before the stock market closed, the May contract for wheat on the Matif is up almost 1%. On the CBoT (where the wheat market took off before the weekend), the increase has so far been limited to a few tenths of a percent. In that respect, soy is on the rise with a May contract that is currently 0,7% higher. Corn is the exception with a minimal decline.
The import of grain from Ukraine is becoming a divisive issue in the EU. Due to the war with Russia, not all ports on the Black Sea are fully operational in the country. Logically, Ukraine therefore relies on exports via land routes through the EU (via Belarus as a loyal ally of Russia is not an option). The intention is that products from Ukraine would be further transported via European seaports, for example on the Baltic Sea. However, due to faltering logistics lines within the EU, some of this remains in the eastern member states. This puts pressure on prices for local farmers. Several Member States have asked the European Commission to take these problems into account and take measures against them in the trade agreements with Ukraine.
Deaf ears
However, the Commission did not respond to this. Poland and Hungary therefore took matters into their own hands and decided on Saturday to close their borders to grain from Ukraine. Today (Monday, April 17) it was announced that Slovakia is also temporarily closing its borders to grain and other agricultural products from Ukraine. The import of relatively cheap grain from Ukraine is a politically sensitive issue, especially in Poland. There will be elections later this year and the ruling right-wing conservative party PiS is under heavy fire among its supporters, who are mainly in rural areas. Brussels is, to say the least, not happy with the unilateral actions of Poland and Hungary. The European Commission calls the actions unacceptable and believes that such measures should only be taken at European level. This undermines the unity of the EU as a trading bloc. The fact that a number of Eastern European member states follow their own course if the policy from Brussels does not suit them is not new. Procedures are underway against both Poland and Hungary, but Brussels has so far mainly proven to be a toothless tiger.
In Ukraine, concerns about grain exports are increasing. On the one hand, the country sees that Russia is jeopardizing the current grain deal (in which exports go through three ports on the Black Sea). Last week, inspections of grain ships en route to Ukraine were temporarily halted due to Russia. In addition, the Kremlin is preparing for the grain deal not to be extended after May 18. The other route for export via the mainland and via the Danube is now closed by EU member states.
Weather market
In addition to developments in Ukraine, the weather is an important factor that gives direction to the grain market. In France, soft winter wheat is doing well. In the week to April 10, 94% of the area will receive the good or excellent status. In the US, drought on the prairies remains a problem. This mainly affects wheat, which is the most important crop in this region. According to several analysts, an average yield is still the highest achievable in the American wheat belt.
According to some analysts, the wheat market responds little to the bulls in the market. A top harvest in the Northern Hemisphere is anything but certain and, all things considered, is no longer possible for North America. How uncertain the situation in Ukraine should be appreciated is more difficult. Russia plays an important role in this and that country of course has very clear interests of its own. After a good harvest, Russia has a large supply of its own to sell on the world market. In addition, Russia would of course not be wrong to affect the Ukrainian trade balance by deterring potential buyers of Ukrainian grain.
Another factor that certainly plays a role in the moderate mood on the wheat market is the technical indicators. The technical analysis for example, also gave negative advice for today. Due to the downward trend of recent days, the models mainly focus on where the bottom is in the market. The €245 per tonne has been the hard lower limit so far. It will be interesting to see whether the price remains above this level in the coming days/weeks and the mood in the market changes, or whether we remain on the downward slide with a short recovery in between.