It has been busier on the grain futures markets. Due to a day off in the US, trade there came to a standstill. Grain traders may be enjoying the long weekend, but the market has no pause button. After all the unrest caused by the threat of violence in the Black Sea, new tax and export legislation adopted by the Ukrainian parliament is now under fire. In Argentina it is also politics that causes extra unrest within the grain complex.
The December wheat contract on the Matif closed yesterday €2 lower at €222 per tonne. The Chicago stock exchange was closed on Thursday due to the American holiday Thanksgiving Day. No trading on the CBoT was also noticeable in Paris, where it was quieter than earlier this week.
There may be little spectacle on the futures markets, but that does not mean that nothing else happens. The Ukrainian Association of Grain Traders warned yesterday about what they consider to be a poorly thought-out grain export bill that the Ukrainian parliament adopted on Tuesday, November 21. Due to the new rules, grain exports could come to a complete standstill, according to the association. The bill includes new rules for taxing grain export transactions, as well as the possibility of introducing minimum export prices. The purpose of the legislation is to make tax avoidance on agricultural products impossible. These measures are the next step in the fight against corruption led by Zelensky's government.
Export stop
"The Association of Grain Traders is concerned about a possible complete stop to grain exports from Ukraine as a result of the approval by Parliament of ill-considered legislative changes in the field of grain and oilseed exports that contain contradictions in legislation, including tax law" , the association writes. According to the association, the bill states that export prices may not be lower than the average grain price on international exchanges in the previous ten days. According to traders, this requirement cannot be introduced. According to them, the export price that Ukraine establishes in this way will inevitably once exceed the real physical world market price.
Political shift
In Argentina, the grain trade has been paralyzed by a shortage of soy following a drought and farmers holding onto supplies in anticipation of changes in monetary policy by newly elected President Milei. At least that is what the export director of the Brazilian Chamber of Commerce told Reuters. First, Argentina is facing its biggest grain shortage in six decades after a disastrous growing season. The second problem is the extremely high inflation. To prevent further devaluation of the peso, the Argentine government works with fixed exchange rates. The market does not care much about this and now a parallel system has emerged. The government has set the rate at 350 pesos for 1 US dollar, while on the open market up to 1.000 pesos must be paid for 1 US dollar.
To accommodate the agricultural sector, which falls below the government exchange rate, the Argentine government has set up a more favorable program: the soy dollar. Milei said in his election campaign that once he becomes president he will scrap currency rules and cut taxes. Milei will be inaugurated on December 10 and growers and exporters want to wait those few weeks. Soy mills and grain terminals are therefore now only running at 25% of their capacity, according to Reuters sources.