When did we hit the bottom in the grain market? That's the question analysts are trying to answer after two weeks of mostly red numbers. Favorable weather in the Northern Hemisphere and a top harvest in Brazil pushed prices down further in the past trading session. But developments outside the grain market are also being looked at. Russia, meanwhile, is making frantic efforts to boost prices, but the market seems to be taking the Kremlin less and less seriously, it seems.
The May wheat contract on the Matif took another hit yesterday. The price fell by €5,75 and closed at €232,75 per tonne. The May contract is about to expire and most of the trading is done on the September contract. That contract also took a big step back and yielded €6,50 to close at €230 per tonne. In Chicago the mood was not much better. The May wheat contract on the CBoT fell 1,4% to $5.95½ per bushel. Soy lost 1% to $14.39½ per bushel. Corn was also not successful, but the loss here was not too bad. Corn prices fell 0,2% to $6.38 per bushel.
The relatively favorable weather for grains in the Northern Hemisphere is indicated by analysts as one of the main reasons for the sharp declines in prices. In Europe, wheat is generally in good to very good condition. In the US, rain is forecast for the drought-hit southern wheat belt. Factors outside the grain market are also cited as reasons for the negative mood. The banking sector remains weak, according to analysts. Earlier this week, the American First Republic Bank collapsed. This bank was acquired by JP Morgan and although regulators believe that First Republic Bank is the latest domino to fall, players in the financial markets are not entirely convinced.
The cause of the banks' problems is strongly related to rising interest rates. There is probably no end to rising interest rates yet. Australia's central bank raised interest rates by 25 basis points yesterday, despite signals the bank previously gave that there would be a pause after the April increase. Today the Fed will make a new interest rate decision and it is expected that interest rates will increase by 25 basis points. The ECB will also follow suit later this week and, according to analysts, will most likely raise interest rates further. The interest rate increases put a brake on economic growth and that translates into lower raw material prices.
Making room
The top soy harvest in Brazil is putting further pressure on the grain market. According to market agency Conab, 1% of the country's soy has been harvested until May 94. The record soy harvest is causing luxury problems for Brazilian farmers. Some sources report that exports must be accelerated to make room in the silos. Prices on the Brazilian market are therefore below prices in the US. The relatively cheap Brazilian soy is dragging down other markets. The fact that growers in Brazil are in a hurry to sell is because the corn harvest is almost upon us. And after the extraordinary soy yields, good corn yields are also predicted and that corn must be able to be stored somewhere.
Divide and conquer
Russia is doing its utmost to boost grain prices, but is certainly not succeeding. Russia has an ample supply of wheat that it would like to sell on the world market at a high price. To stem the tide of falling prices, the Kremlin came up with a minimum wheat price of $275 per ton for exporters to obtain an export license. This policy now seems to have been jettisoned when we look at the latest GASC tender (the Egyptian state buyer). The best bidder is a Russian exporter at $260 per ton FOB (delivered to the ship at the seller's port). The next entry also comes from Russia at $263 per tonne (FOB).
Russia continues to sow doubts about the extension of the grain deal. Today a meeting between Russia, Ukraine, Turkey and the UN is on the agenda. A next round of talks is planned for Friday, May 5, but it is unclear whether they will take place. According to the Turkish state news agency Anadolu, delegations from Russia and Ukraine will come to Istanbul on Friday. However, the Russian state news agency RIA reports that there is no agreement on this yet.