Things are not getting any more stable in the grain market. Grain exports from Ukraine remain a headache. The UN and the EU are exploring alternative routes now that the Black Sea has been practically closed. But even within the EU that is not a race. The weather reports on the other side of the Atlantic are not exactly helping to tame the market either. Doubts are growing, especially about the maize harvest.
The September wheat contract on the Matif closed €2,25 higher yesterday at €234,50 per tonne. On the CBoT, the upward momentum was stronger than in Paris. Wheat added 2,6% to $6.70¾ per bushel. Corn jumped all the way to close 5,9% higher at $5.28¾ per bushel. Soy stands out in stark contrast with an increase of 0,5% to $14.92 per bushel.
The weather and developments in Ukraine are the driving forces on the grain market. As is known, Russia withdrew from the grain deal on Monday. The question that arises from this is: what now? Several sources report that the UN is investigating different ways to get grain from Ukraine and grain and fertilizer from Russia onto the world market. The measures on the table are not further specified.
Exporting grain from Ukraine via the EU is the most logical solution, although there is simply not the capacity to completely take over exports via the Black Sea. But the influx of grain from Ukraine is meeting resistance from Poland, Romania, Bulgaria, Hungary and Slovakia. After unilaterally imposing trade restrictions, these countries agreed in Brussels that the import of wheat, corn, rapeseed and sunflower seeds from Ukraine will be subject to strict rules until September 15 to prevent market disruption. In short, it means that grain from Ukraine may enter these countries, but it must be retransmitted immediately and must not be left hanging.
Market protection
The Hungarian Minister of Agriculture told Reuters today that the group of five is committed to an extension of the measures after September 15. In addition, according to the Hungarian minister, the option is being discussed to have countries individually submit a request to the EU to add other products to the ban.
Russia has given the UN three months to achieve concrete results with the implementation of the memorandum signed simultaneously with the Black Sea grains deal a year ago. The memorandum contains agreements on the access of Russian grain and fertilizer to the world market. The international community's failure to honor these agreements was the reason for the Kremlin to abandon the grain deal.
Russian view
Russia, meanwhile, launched attacks on Odessa, home of Ukraine's largest Black Sea port, for a second day in a row. That is a direct attack on grain exports according to several experts. And that is not without effect. Several insurers no longer want to cover grain transport from Ukraine across the Black Sea or charge a very high risk premium.
The UN and the EU emphasize the importance of the grain deal to keep food prices in check for the poorest countries in the world. And the Kremlin seems to have its own thoughts about that. According to estimates, Russia has approximately 46 million wheat to export. Putin is said to be considering removing the export tax on grain for selected countries. Then, for example, Egypt or Syria could buy grain at a reduced rate. In the Kremlin's view, this counters the criticism that Russia is using food as a weapon. And as the Kremlin argued, under the grain deal the vast majority of Ukrainian grain exports did not end up with the poorest countries anyway, but most went to the EU and China.
Tick of drought
Weather reports mainly influence harvest expectations in the US. Due to drought, the US wheat harvest is estimated to be slightly lower than the USDA forecast, 44,1 versus 45,2 bushels per acre (approximately 2,97 and 3,04 tons per hectare). As temperatures warm and dry again in the central and northern US, concerns about spring wheat, corn and soybeans are increasing. After a dry month of June, rain in the first half of July had a positive effect, especially on maize. However, the supply of moisture in the soil is limited and now that there is hardly any precipitation in the forecast for the next week or two, corn in particular - which needs moisture at this point in the growing season - could take a big hit. Several analysts note that the corn price increase on the CBoT yesterday may have been somewhat exaggerated. But it is logical that the weather premium is built up.