The effect of the trade war unleashed by Donald Trump was clearly visible yesterday on the grain market. Wheat, corn and soy all took a big hit. American exporters are mainly struggling with the consequences for corn and soy, and strangely enough, these were not the biggest losers. If the market recovers, wheat could take the lead according to some experts.
The March wheat contract on the Matif closed yesterday down €1,25 at €216,25 per tonne. On the CBoT, wheat closed down 2,5% at $5.18½ per bushel. Corn also took a step back, down 1% to $4.36 per bushel. Soybeans were no exception, down 1,4% to close at $9.84 per bushel.
The introduction of trade tariffs by Donald Trump and the reaction from Canada, China and Mexico kept the grain market busy. For corn, the main concern is the trade relationship with Mexico. There was already a lot of discussion between the US and Mexico about whether or not to allow GMO corn from the US. That has finally been resolved and up to mid-February, Mexico has secured a record amount of American corn with 17,2 million tons. That is 70% of the expected export to Mexico in the USDA forecast.
In soy, it is China in particular that is making American exporters nervous. Beijing announced a 10% levy on American soy. In a way, that is remarkable. Soy is more important to American exports than corn and wheat, but for the latter two, China is imposing a 15% levy.
Cold is followed by drought
If tempers calm down a bit after the first battle in the trade war, the recovery within the grain complex could well come from wheat. In the US and Russia, winter wheat has been hit by frost. The exact extent of the frost damage has yet to be determined. With the cold barely behind us, the next problem is already looming for American and Russian wheat growers. Both on the (northern) prairies in the US and in the southwestern wheat belt in Russia, the weather reports predict little or no rain. Especially in Russia, where wheat was already moderately developed after the dry autumn and winter, we could still see significant reductions in yield forecasts according to various analysts.
Eliminate import duties
Indian millers have called on the government to remove the 40% import duty on wheat. Wheat supplies in India are rapidly dwindling and the retail price of wheat in early March is about 8% higher than a year earlier. To calm the market, the import duty should be removed or at least brought down to below 10%. In order not to antagonize Indian farmers, the millers' lobby is proposing to postpone the duty until sometime in June, when farmers have usually sold most of their wheat crop, either through the government's intervention system or to commercial traders.
Above-average temperatures in India are fueling concerns about the upcoming wheat harvest. Any shortfall in yields undermines the Indian government’s efforts to bring down the price of wheat on the domestic market. According to the USDA, India’s wheat stockpile is the lowest in 110 years. Mills are expecting an Indian wheat harvest of XNUMX million tons, up four million tons from a year ago, and the higher yield is almost entirely due to an expansion of the country’s wheat acreage.