The mood in the grain trade is shifting and the market bounced back a bit last trading session. Warm and dry weather expected for the last two weeks of August in the US is fueling upside momentum. Russia is looking for new destinations for wheat and India - which has hardly been involved in the wheat market for years - is interested.
The September wheat contract on the Matif closed yesterday €2 higher at €229,75 per tonne. On the CBoT, wheat moved mainly sideways to close 0,1% lower at $5.97¾ per bushel. Corn was clearly on the rise and rose 1,2% last trading session. The September corn contract came to $4.69½ per bushel. Soy lagged slightly compared to corn but still closed 0,9% higher at $13.34¾ per bushel.
Developments in the Black Sea region are being closely monitored on the wheat market. Yet the drone attack early Wednesday morning only had a limited effect on the market. Such attacks mainly cause unrest, but the actual effect on physical export capacity is not too bad, some analysts say. APK Inform yesterday released a new yield estimate for the Ukrainian harvest. The agency estimates wheat production at 20,6 million tons. That is just under the 21 million tons that the USDA calculates. Exports are estimated by APK Inform at 12 million tons, which is higher than the 10,5 million tons projected by the USDA.
The White House released a message yesterday (Wednesday) that the US is working on alternative routes for transporting the Ukrainian grain. “We are looking for roads and corridors to move grain to where it needs to go,” said Vedant Patel, spokesman for the U.S. Department of State. Patel further called on Russia to immediately return to the Black Sea grain deal. Washington has no concrete indications that Russia is considering rejoining the grain deal.
India is seeking rapprochement with Russia
While the relationship between the West and Russia is downright bad, Russia will not be completely isolated. Reuters news agency reports that India is negotiating with Russia to import wheat. Inflation on the subcontinent rose to a 15-month high in July. Relatively high food prices play a large role in this. And with elections approaching next year, the Indian government is keen to get high food prices under control. India normally produces enough wheat for domestic consumption. More than a year ago, India even considered exporting wheat. The Indian government has not purchased additional wheat for years. A significant additional volume was last purchased in 2017. Then 5,3 million tons were purchased, by private parties.
India's wheat intervention stock is 1 million tonnes as of August 28,3, more than 20% below the ten-year average. The price of wheat on the domestic market has risen by 10% in the last two months, reaching a seven-month high. It comes as no surprise that India is seeking rapprochement with Russia. The lines between New Delhi and Moscow are short, food has been excluded from the sanctions package and India and Russia have already found ways to make payments with sunflower oil. According to Reuters sources, India needs 3 to 4 million tons of wheat, but the government wants to import 8 to 9 million tons to make a bigger impact on the domestic market. And India can easily extract a discount of $25 to $40 per tonne from Russia.
Weather premium
Corn and soy received support from US weather reports. Large growing areas in the country will experience a warm and even more importantly dry second half of August. Corn and soy were sown on time, but a dry early summer nevertheless put the crops behind. Over the past month, corn and soy have been catching up and it looked like things were going well. However, the later varieties of maize and soya still have to gain weight. Heat and drought stress at this point in the season can still throw quite a spanner in the works. That is why the weather premium on the futures market is being built up again.