There are mixed signals on the grain market. The threat in the Black Sea region is not diminishing, but the risk premium is not really increasing. The new IGC was bullish in tone, but that was not really adopted by the market. Another factor that is very difficult to estimate is the new president of the US.
The December wheat contract on the Matif closed up €0,50 at €220,25 per tonne. On the CBoT, prices took a step back during the trading session. Wheat closed down 0,7% at $5.48¾ per bushel. Corn lost 0,8% to $4.26¾ per bushel. Soybeans were the biggest loser at 1,3%. The January soybean contract closed yesterday at $9.77¾ per bushel.
The mood on the wheat market is all things considered somewhat subdued. The threat of war between Russia and Ukraine is not diminished, but the premium is not increased much further. According to Putin, the use of the intercontinental missile by Russia was a test for the West, according to various news services. Furthermore, the Russian president indicated that he was not impressed by the long-range missiles that Ukraine is now using in the 'special operation', as the Kremlin continues to call the war.
A striking detail is that the BBC announced today, based on research by the Open Source Centre, that Russia has supplied North Korea with over a million barrels of oil since March. Oil is the payment for the weapons and soldiers that North Korea supplies to Russia to continue the war in Ukraine. Such oil deliveries are in direct conflict with the UN sanctions against Pyongyang. North Korea is the only country in the world that is prohibited from buying oil on the open market. This trade embargo was imposed at the time to prevent North Korea from developing nuclear weapons.
Wet season in Europe is having an effect
The International Grains Council (IGC) has cut global wheat yield expectations by 2 million tonnes to 796 million tonnes for the 2024/25 marketing year. The EU is responsible for the largest share of the reduction. The 2024 harvest has been reduced to 120,3 million tonnes, compared to 121,8 million tonnes a month earlier. Last season, 133,1 million tonnes were threshed in the EU. France has the smallest wheat harvest in forty years and yields in Germany are also much lower after the extremely wet season.
The weather is causing some price pressure on the grain market. In the US, only 40% of the winter wheat is now in a drought region. That was 62% at the peak three weeks ago. In South America, drought is not the biggest problem either. Up to and including the first week of December, the weather models predict rain for Brazil and Argentina, among others.
Political wishes
The geopolitical developments around the Black Sea have already been touched upon, but there are also uncertainties in the US. Most interest from the grain trade is focused on the trade relationship between China and the US. president-elect Trump is known to be no fan of importing Chinese goods, and the American export of agricultural raw materials could be a victim of this. What Trump will do with biofuels is even more of a mystery. During his previous term, Trump paid little attention to international climate treaties, and his attitude is not expected to change much in the coming four years. What has changed compared to eight years ago is that the oil companies and biofuel producers seem to have found each other. Anything is better than electric driving, is the reasoning of both the fossil and biofuel industries. The question is whether that unanimity will hold now that someone has come into the White House who has spoken out in favor of the oil companies.