Relatively favourable weather in the EU and North and South America and a rise in the dollar put pressure on grain prices. The fact that it is dry in Ukraine, Russia and Kazakhstan remains somewhat underexposed, even though the first two are major players on the world market. The relationship between China and the US also remains a topic of discussion. Now it was a top executive of a Chinese state-owned company who shed light on the demand for soy from China.
The December wheat contract on the Matif closed yesterday €5,25 lower at €209,25 per tonne. On the CBoT, wheat also took another step back and closed 2% lower at $5.41 per bushel. Corn was also in the red, but here the loss was limited to 0,5%, bringing the closing price to $4.26½ per bushel. The November soybean contract showed a small plus and closed ¾ cent higher at $10.04¼ per bushel.
For the EU, the weather models are leaning towards somewhat wetter weather, but - apart from the extreme showers in Spain - not extreme. In the Midwest and the southern prairies in the US, where it was dry, rain has fallen in recent days and more is on the way. Trade is already anticipating the American drought monitor and it is expected that the red spots on the map will become smaller this week. A mix of showers and dry periods is predicted for South America. These are favourable conditions for the development of the newly sown soy and corn. However, it should be noted that the precipitation will pass by part of southern Brazil and western Argentina.
Drought in the east
There is little attention for the drought in Ukraine, western Russia and Kazakhstan. For the next ten days, no significant rain is in the weather forecast for that area. The winter wheat is already moderately developed there and cannot catch up due to the lack of moisture, as we saw in the US last week. Moderately developed wheat is more sensitive to wintering out, if the temperatures really start to drop.
Last October, Russia exported 11% more grain by sea compared to the same month a year earlier, according to some sources. A total of 6,3 million tons of grain left by sea in October. Since the start of the season, 2,1% more wheat has been exported by sea. Analysts estimate that about 45% of the grain stock available for export has already been exported. It is striking that Russia exported 28% more grain via the Baltic Sea in October compared to October last year. More than 50% less grain was exported via the Caspian Sea, according to shipping data. The Caspian Sea is the main route to Iran.
Competitive disadvantage
American exporters are suffering from a strong dollar, according to several analysts. Inflation in the US has risen from 2,4% last month to 2,6%. This is in line with expectations. The result of the increased inflation is that the US Central Bank has less room to lower interest rates. Lowering interest rates is an important instrument of the Fed to lower the dollar. American grain was already relatively expensive on the world market and this is only getting worse due to an expensive dollar.
A source at Cofco (a Chinese state-owned food processing company) reports that China could import significantly less soy from the US this season than the USDA is counting on. The USDA expects the US to export 2024 million tonnes of soy to China in the 25/109 season. According to the CEO of Cofco, this could drop to 98,8 million tonnes. China has been stockpiling soy in the run-up to the US elections and therefore does not need to buy. According to the source, how much soy China will actually import in the second half of the season depends on how the trade relationship with the US develops with Trump in the White House.