The chance that the grain deal will be extended in time decreases further. The current deal expires tomorrow and Russian objections to the current implementation do not appear to have been dispelled. In a way, it is remarkable that the grain market hardly responds to this, if you look at the correction in the market yesterday. Grain market players have flipped like a leaf on a tree and are now downplaying the importance of the deal.
The grain market took a step back yesterday. The September wheat contract on the Matif gave up €5 to close at €234,50 per tonne. On the CBoT, the July contract fell 2% to $6.47½ per bushel. Corn fell 1,9% to $5.81¼ per bushel on the US stock exchange. However, the biggest decliner in Chicago was soy. The oilseed lost 2,6% to close at $13.64 per bushel.
A correction in grain prices after the rally that was largely caused by last Friday's Wasde report does not come as a complete surprise. Speculators have made their way up again and are now taking their profits. Relatively favorable weather forecasts for North and South America and weak economic growth figures for China reinforced the negative mood on the stock markets.
Russian objections remain intact
The chance that the Black Sea grain deal will be extended on time is small, according to sources. The UN reported today (Wednesday, May 17) that the last ship covered by the deal has left Ukraine. The current agreement expires tomorrow (Thursday, May 18). The grain deal was established in July last year to restart grain exports from Ukraine. To persuade Russia to cooperate, in addition to the agreement between Ukraine, Russia, Turkey and the UN, a three-year agreement between Russia and the UN has also been drawn up. It has been agreed that the UN will make efforts to better facilitate Russian agricultural and fertilizer exports. And that is very much the case with the Kremlin. Moscow believes that the UN is not adhering to these agreements. Russia's strict demands include that the Rosselkhozbank regains access to the Swift payment system, that agricultural machinery and parts for it can be supplied again and that restrictions on insurance and access to foreign ports for Russian ships are lifted. Yesterday the Kremlin reported that no decision had been made about extending the deal, but Russia has surprised many times before.
Ukraine has less to export
Parties from the grain world are now downplaying the importance of the grain deal. At least that is the picture that emerges from various reports emerging from the GrainCom conference to be held in Geneva from 15 to 17 May. The Ukrainian grain harvest this season is smaller than last season. The Ukrainian Committee of Grain Traders expects a corn harvest of 21,1 million tons compared to 27,3 million tons last season and a wheat yield next harvest of 17 million tons compared to 20,2 million tons last season. The smaller harvest means less pressure on the ports on the Black Sea. The lower volumes can largely be exported via other routes.
These other routes by land, rail and via the Danube come at a price for Ukrainian farmers. Transport costs are up to approximately 20% higher according to various experts and that additional price is in principle paid by Ukrainian growers, resulting in lower margins. There is a big risk involved. If farmers earn less, they can also invest less in next season. A further shrinkage in acreage and/or lower yields because the money is simply not there to invest in fertilizer and crop protection is therefore likely.
El Niño coming
The Buenos Aires grain exchange expects wheat yields in Argentina for the 2023/24 harvest to be 45% higher compared to last season. The next harvest would therefore amount to 18 million tons. In 2022/23, Argentina suffered a historic drought that decimated wheat as well as corn and soy yields. The likely shift to the El Niño weather pattern after three La Niña years will allow the moisture shortages in Argentina to be replenished. This shift in weather pattern is less favorable for Australia. Analysts are already cautiously assuming that grain yields in Australia next season will not be able to match the last record harvest.