Analysis Grains & Commodities
Market not reassured by Putin's reaction after drone attack
Geopolitical developments are once again gaining a grip on the grain market. Putin told Trump that he cannot let the Ukrainian drone attack pass him by. It is not clear what the Russian response will be, but players on the grain market are not reassured. Incidentally, Trump had a busy day, because he also made himself heard about China. Incidentally, grain growers in China have other concerns. In the most important wheat growing area of China it is very dry.
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The September wheat contract on the Matif showed a modest gain, closing €1 higher at €203 per tonne. On the CBoT, wheat was more strongly on the rise, closing 1,4% higher at $5.43¼ per bushel. Corn closed a quarter cent higher at $4.38¾ per bushel. Soybeans closed 0,4% higher at $10.45 per bushel.
The unrest in the Black Sea region is once again having a hold on the grain market. US President Trump had a telephone conversation with his Russian counterpart Putin yesterday. According to Trump, Putin said that Russia must respond to the recent drone attack by Ukraine. How and what is of course not clear, but people in the grain trade are not reassured.
Diversification
It is not surprising that a major buyer of wheat from the Black Sea region, Egypt, is looking for suppliers from other regions in order to spread the risk in the current turbulent geopolitical landscape. Following earlier reports by Reuters about purchases of wheat from France and Romania, Mostakbal Misr, the state agency for the purchase of grain and the successor to Gasc, has told the news agency that it is focusing on diversification of suppliers. In addition to Europe, Egypt is also looking at suppliers in the southern hemisphere, including from South America and Australia. In this way, Egypt is trying to adapt to the increasing geopolitical risks and the volatility regarding the supply of grain from the Black Sea region, specifically Russia and Ukraine. Deferred and/or long-term purchases are another instrument with which changes in the market can be anticipated, according to Mostakbal Misr.
Trump wasn't just busy with Russia yesterday. On his social media Truth Social, Trump posted a message about Chinese President Xi Jinping. "I like President XI of China, always have and always will, but he is VERY TOUGH AND EXTREMELY DIFFICULT TO MAKE A DEAL WITH!!!", Trump wrote. This fuels the unrest about trade relations between China and the US. Players in the markets are wondering whether America and China will come together in the short term and whether a trade agreement is on the way.
Rain at the wrong time
Weather remains another important factor in the grain market. The weather forecasts for corn in the US are not looking unfavorable. Rain is expected for large parts of the corn belt and with sowing largely completed, that can only be favorable. Rain is also expected for the southern prairies. That precipitation is less well-timed there. A start has been made with the wheat harvest. However, dry weather is essential to keep the combines going. In addition, rain in a ripe crop does not benefit the quality. The hectoliter weight in particular is a point of concern according to various local sources.
Farmers in the wheat belt of China are dealing with a very dry period. This is not good for the potential yield of wheat there. The USDA was counting on a record yield for wheat in China with a harvest of 142 million tons. That would mean an average yield per hectare of just over 6 tons. By comparison, in the EU the European Commission was counting on an average yield of 5,8 tons of wheat per hectare. Some analysts are therefore a bit doubtful whether the current harvest estimates for China are entirely realistic.