Tensions in the Middle East are driving up oil prices and supporting cereals, while uncertainty regarding the Strait of Hormuz persists. Read more about the impact of geopolitics on wheat and corn.
The May wheat contract on the Matif closed yesterday at €2,25 to €207,50 per ton. On the CBoT, wheat was on an even stronger upward trend, rising 2,5% by 14 cents to $6.04¼ per bushel. Corn also closed in the green with a gain of 9¼ cents to $4.63¼ per bushel. Soybeans lagged somewhat behind cereals with a gain of 4¾ cents to $11.61¾ per bushel.
The grain market is swinging all over the place. According to various analysts, yesterday's rise in crude oil is a major reason for the support in the grain market. Yesterday, the Iranian Revolutionary Guard threatened to attack energy facilities in the Middle East in retaliation for the Israeli attack on an Iranian gas field. That proved not to be an empty threat. Iran launched a missile attack from an LNG plant in Qatar. Various sources report significant damage in Qatar. US President Donald Trump has threatened to blow up a major gas field in Iran if the country attacks Qatar, a US ally in the Gulf region, again.
According to analysts, the fact that the energy sector in the Middle East is now facing targeted attacks represents a break with the trend of how the war has unfolded so far. However, it does not reduce uncertainty in the oil and commodity markets in a broader sense. In that regard, wheat is one of the most important commodities for food security. Bank of America wrote in a report yesterday that the wheat futures market has yet to feel the true consequences of the blockade of the Strait of Hormuz. The bank anticipates significant upward price risks for wheat and corn. From a grower's perspective, however, that is to be expected.
Damage in Russia is not too bad.
It is of course still early in the growing season, but winter wheat in Russia appears to have weathered the winter better than previously thought. LSEG raised the yield estimate for the wheat harvest in Russia by 3% to 84,0 million tonnes, within a range of 81,3 to 87,3 million tonnes. The agency is leaving the spring wheat harvest unchanged at 23,9 million tonnes, while winter wheat has been revised upwards to 60,1 million tonnes. The extremely cold weather in late January and early February in the central regions of Russia resulted in less winter damage than previously expected. According to LSEG, there was sufficient snow to protect the wheat from the worst of the cold.
Last month, temperatures in Russia were around or slightly above the multi-year average, with precipitation around the average. Warmer-than-normal weather is forecast for the coming two weeks, along with little or around the multi-year average rain. However, April and May are the crucial months that determine wheat yields in Russia according to LSEG, and not much can be said about that yet.
Risks are increasing
S&P Global Energy expects American farmers to plant 95,2 million acres (38,5 million hectares) of corn this spring. In its January forecast, the market agency projected an area of 95,0 million acres. According to the USDA, 98,8 million acres of corn were grown in the US last season. S&P Global estimates the soybean acreage for the upcoming harvest at 85,0 million acres, compared to 81,2 million acres. Prices for major arable crops have been rising since late February due to geopolitical tensions, S&P Global notes. "Although recent price developments have become slightly more favorable for growers to plant additional corn, higher fuel and fertilizer costs remain a concern," the company writes in the commentary.