The grain market remains volatile. The first half of the last trading session was dominated by developments in Ukraine. After the collapse of the Nova Kakhovka dam, it is mainly the images of the floods that are circulating. But the reservoir is also an important source of irrigation in the south of Ukraine. On the American stock market in particular, the weather reports got the upper hand later in the trading day yesterday. Especially in maize, the weather forecasters are feeding the uncertainty in the market.
Not much going on on the Matif, you would say if you just look at the closing price. The September wheat contract closed €0,25 lower at €230,25 per tonne. However, the spread during the trading day was relatively large. In the morning the price rose to €236,50 and in the afternoon the price dipped to €228,75 per tonne. Traders on the CBoT also struggled with how to price different factors into the wheat price. The July contract ultimately closed 0,6% higher at $6.27¾ per bushel. Soy also showed a modest plus and closed 0,2% higher at $13.53¼ per bushel. In corn, upside momentum was stronger and the July contract gained 1,8% to close at $6.08 per bushel.
The blowing up of the Nova Kakhovka dam has focused the attention of players in the grain market on the war in Ukraine. It is not clear who is responsible for the explosion, but several experts call Russia the most likely perpetrator. The consequences of the breach of the Kakhova dam are major. About 42.000 people are in immediate danger of flooding and hundreds of thousands of people are experiencing a problem with the drinking water supply, according to Ukrainian President Zelensky. There are also concerns about the cooling water supply of the Zaporizhia nuclear power plant - the largest nuclear power plant in Europe - although there is no immediate danger according to the International Atomic Energy Agency. According to the Ukrainian Ministry of Agriculture, agriculture in southern Ukraine is also in trouble. About 10.000 hectares of arable land in the Kherson region, on the north side of the Dnieper (which is in the hands of Ukraine), has been flooded, and many more on the south side (Russian-occupied territory), the ministry estimates.
Problems with irrigation
However, the consequences are not limited to the floods. The reservoir is also an important source of irrigation for the area. At least 500.000 hectares could turn into desert due to lack of irrigation facilities, according to the Ukrainian Ministry of Agriculture. Due to the dam breach, 94% of the irrigation systems in the Kherson region are without a supply of water, 74% in the Zaporizhia region and 30% in the Dnipro region. In 2021 (the year before the Russian invasion), 584.000 hectares were irrigated from the Kakhova reservoir, which then produced about 4 million tons of grain and oilseeds. The ministry does not make any concrete statements about how much grain will be lost this season due to the explosion of the dam.
Will it rain again?
In addition to developments in Ukraine, American analysts are particularly focused on weather reports. World Weather Inc. predicts precipitation in parts of the eastern corn belt, but notes that it is insufficient to really replenish the moisture supply in the soil. A real change in weather in the short term is not expected. Changing weather forecasts fuel volatility in the market according to several analysts.
Growers in the US, but even more so in Brazil, still have plenty of corn and soy to sell. That could create a ceiling in the market in the coming weeks. Little rainfall until mid-June puts corn in particular at a disadvantage, but the consequences for the final harvest remain fairly limited. If it remains dry in the second half of the month, experts say it will cost tons of money and the market could continue its upward trajectory. The corn price on the CBoT has been reasonably in line with both 2012 and 2013 in recent weeks. In 2012 the drought persisted and the price increased, while in 2013 the corn price decreased as the growing season progressed. It is not surprising that farmers are now trying to hedge the corn price around the cost plus level and are not waiting to see which direction the market will choose later.