Grain prices did not show any major excesses during the last trading session. However, it remains dormant beneath the surface. The wheat in the US is in bad shape, as confirmed again in the Crop Progress report. A few even draw the comparison with 1935's infamous 'dust bowl'. Exports are becoming urgent for Ukrainian grain growers. The two main routes are at risk.
The May contract for wheat on the Matif gave up €2,25 yesterday to close at €237 per tonne. On the CBoT, wheat also took a step back, falling 1% to $6.41 per bushel. Soy showed the smallest decline yesterday, losing ¼¢ to close at $14.68¾ per bushel. Corn closed in the green, gaining 0,5% to close at 6.56½ per bushel.
American farmers are continuing to sow corn. This is evident from the USDA's Crop Progress report, which was released yesterday evening Dutch time. 49% of the planned area is now in the ground compared to 42% in the five-year average. Last week's rain did not hinder sowing much. Things also run smoothly with the soy. Of the planned area, 35% is in the ground. The five-year average for this week stands at 21%.
There is less positive news about wheat from the Crop Progress report. 44% of the area is rated poor or very poor by the USDA. That was still 42% last week. Winter wheat is in particularly bad shape in the important wheat states of Kansas and Oklahoma. In Kansas, 37% of the acreage is rated very poor and in Oklahoma this is 30%. Spring wheat planting is progressing at a slow pace on the northern prairies. 24% of the planned area is in the ground compared to 38% in the five-year average.
Tipping point coming?
It is logical, according to several analysts, that corn and soy prices are under some pressure. Brazil has had a top soy harvest and corn is looking promising. This largely makes up for the poor harvest due to drought in Argentina. Together with the successful spring in the US so far, the cards have been stacked favorably for buyers of corn and soy. For wheat the room for maneuver is much smaller. Supplies are tighter and we cannot actually afford any major missteps, say some sources. In the latest Wasde report from the USDA, the ministry expects the smallest ending wheat stock in seven years for the 2022/23 season. The wheat market is at a tipping point, some analysts say, and a new rally in the not too distant future is not unlikely.
The wheat conditions on the southern prairies in the US are downright poor and several local sources report that they have not seen this in decades. A major uncertain factor is how many farmers in this region will actually harvest. If the yield is too low, it is not worth taking the combine out of the shed. In the dry years of 1996 and 1989, about a quarter of the acreage in Kansas was not harvested. The comparison with this season has already been drawn by several analysts. Some even mention 1935, in the middle of the 'dust bowl', when half of the wheat remained in the fields. For Canada, the largest wheat acreage since 2021 is forecast by the USDA, but whether all those hectares will actually be sown remains to be seen. As on the northern prairies in the US, sowing spring wheat is slow. Of course, there is still room for catching up, but time is ticking.
Export routes are in danger of being closed
The availability of grain from Ukraine remains another important factor in the market. Russia has stopped inspecting ships under the grain deal, the UN confirmed today. It is highly uncertain whether the deal will be extended after May 18. If the deal is not continued, Ukraine will only have export routes via the EU. And restrictions have been put in place under pressure from various eastern member states led by Poland. Farmers in these countries still have a relatively large amount of grain in storage and are now having to get rid of it to make room for the coming harvest. They cannot use the supply of grain from Ukraine.
The story is somewhat more nuanced, however. Farmers in Poland and Slovakia, for example, waited a relatively long time before selling grain last harvest, partly due to the historically high grain prices during that period. The expectation at the time was that a rapid decline would not be likely. This was not a problem for processors because they had access to relatively cheap grain from Ukraine. The Ukrainian farmers did not receive the top prize for this because in order to remain competitive for European buyers, their price had to remain below EU prices, including the relatively expensive transport by land and rail. Little cash in the bank of Ukrainian farmers and poor export prospects could depress Ukrainian grain yields further than currently anticipated.