What the weather and the grain market have in common is that they are difficult to predict. This was evident once again yesterday with an unexpected correction in the grain market. Unrest in Russia and a larger-than-expected USDA downgrade of corn and soybeans in the US were momentarily forgotten and rain in the weather forecasts prevailed. Ukraine, meanwhile, is getting increasingly stuck in terms of grain exports. Extension of the grain deal is in question and the alternative, exporting grain via the EU, is under pressure.
The September contract for wheat on the Matif fell by €9,75 yesterday to close at €236,50 per tonne. The wheat quotation also suffered a loss at the CBoT. The price fell 5,4% in Chicago to $6.85 per bushel. That is the biggest drop in one day since November. The July corn contract on the CBoT saw losses compared to wheat, down 2,2% to $6.23 per bushel. The September contract, which is the most traded, closed 4,8% lower to $5.56¼ per bushel. Soy was also down, dropping 1,7% to $14.95 per bushel.
The sharp declines in the grain market came as a surprise to many analysts. Market players have barely recovered from the failed coup in Russia and the USDA's Crop Progress report with a larger than expected downgrade of corn and soy in the US, also fodder for the bulls in the market. But as is often the case, the grain market did not follow the patterns that were predicted. Rain forecast for parts of the US in the coming days, combined with moderate temperatures, pushed prices down considerably. While the prices of corn and wheat pushed each other up on Monday, we saw the opposite effect in the last trading session and both prices more or less pulled each other down.
Solidarity
It seems that Russian grain growers are not paying much attention to the unrest in the Kremlin. The harvest of winter grains is going at a rapid pace so far. According to the latest figures, the Russians have already harvested 1,5 million tons of winter grain compared to 875.000 tons last year until June 26. Ukrainian wheat exports via the Black Sea remained at 358.000 tons last week. That is 18% less compared to a week earlier. After the uprising of the Wagner group, the future of the Black Sea grain deal is certainly not becoming any more certain. That current agreement expires on July 18.
Ukraine argues that by delaying ship inspections, Russia has already effectively nullified the deal. With the grain deal in effect, about half of Ukraine's grain exports will go via the Black Sea, a quarter via the Danube and a quarter via the western land borders with the EU. The Ukrainian Seaport Authority announced on Facebook yesterday that it is transferring exports via the Black Sea to the Danube route.
Capacity is limited
That is easier said than done, by the way. Ukraine needs help from Romania, which is one of the eastern EU member states that has taken measures against the import of grain from Ukraine to protect local farmers. In addition, last year the grain harvest in Romania was disappointing, which meant that transport capacity was available in the Romanian port on the Danube. This year, the yield forecast for Romania looks a lot more favorable, which means there will most likely be less room to process a lot of extra grain from Ukraine.
It is not only the transport capacity on the Danube that is a concern. There are problems on the Rhine with a relatively low water level, commodity traders warn. In the western Dutch part of the Rhine there is not much going on yet, but from Duisburg the water level is now so low that ships can no longer be fully loaded due to the draft. This causes transport costs to increase. The Rhine is an important route for the transport of grain, but also for coal, ore and oil.