The erratic grain market has different faces

Before the weekend, the grain market took a step back across the board, with the biggest outlier being the wheat quotation on the Matif. On the American stock exchange, wheat, corn and soy also closed lower, but here the losses were more limited. Today the market is starting off a bit hesitantly. Wheat on the Matif is up 0,1% while the CBoT is down 0,1% at the time of writing (before closing of the stock markets). Soy is also cautiously on the rise, but corn is in the red with a decline of 0,75%. 

Developments in the Black Sea region are currently largely determining the mood on the wheat market. Poland and Ukraine reached an agreement on grain transports last week, which came into effect last Friday. The rapprochement between the countries, in combination with the soothing words and the support package that the European Commission has promised to the eastern member states, weighed heavily on the wheat quotation in Paris. In the meantime, Russia is doing its best to shake up the market again, or so it seems. Yesterday (Sunday, April 23), former President Dmitry Medvedev said that if the G7 imposes a complete export ban on Russia, the grain deal will be immediately off the table. The G7 countries had discussions last weekend about extending and expanding the grain deal. Afterwards they condemned 'Russia's attempts to use food as a means of destabilization and for geopolitical purposes' and discussed what could be done about this. "This idea of ​​these idiots at the G7 about a total export ban to Russia is nice in itself because it implies, as a counter-reaction from Russia, that we will come up with an export ban including goods that are very sensitive to the G7 countries," Reuters quotes Medvedev as saying. a telegram post. "In such a case, the grain deal and all associated obligations will stop immediately."

Russia is already making sure that the grain deal will not be extended after 18. Shipowners can still register ships for inspection to Ukraine, but Russia wants to be guaranteed that the ship will be gone before May 18. Otherwise the application will not be processed. Russian Foreign Minister Sergei Lavrov arrived in New York this morning for the UN Security Council meeting. However, the grain deal is also expected to be discussed.

Even if rain comes, it will be too late
In the US, analysts remain under the spell of drought. Things are probably still going well on the northern prairies, as the latest seasonal forecast shows. This does not apply to the southern one wheat belt. In Kansas, Oklahoma and Texas it remains too dry according to weather forecasters. In recent days there was a shower here and there, but not enough to make a difference. Some analysts now say that even if the weather really changes in the short term and significant rain falls on the southern Prairies, it will not do much for grain yields in the area. The crop is too developed for that. 

The new harvest of corn and soy in the US will take some time, but American processors are already working on a new harvest, only from South America. Several sources report that processor(s) in the US have purchased a significant amount of Brazilian soy. One talks about two shiploads, while the other dares to give a concrete figure of 80.000 tons. Either way, it puts pressure on the price of soy on the CBoT. Brazil has a large harvest and due to various bottlenecks, farmers are unable to sell and ship the quantities of soy they would actually like. Prices on the Brazilian market are therefore approximately $2 per bushel lower than in the US. It is not surprising that American bargain hunters are now trying to make their mark on the Brazilian market.

Tension increases
The fact that the grain market is not yet in calmer waters is reflected in, among other things, the technical analysis. The markets - whether wheat, soy or corn - are going from one extreme to the other. The spread between the old and new crop wheat contracts has widened in recent days. Halfway through this month, the May 2024 contract was €6 higher than the current contract. This has now increased to a spread of €10 between the May contracts. That is a sign that the market is again building up a risk premium and custody fee for the longer term. That in itself is a bit of a break from the trend of the past year. Another factor that also plays a role in the current volatility in the market is that the number of open positions for the May contract is shrinking considerably. The May 2023 contract has more than 63.000 open positions compared to more than 160.000 in September. This can certainly partly explain the violent price movements of the May contract.