The Profarmer Crop Tour (for those on Twitter #pftour22) traveled back and forth to corn and bean states in the US taking samples and estimating yield. Although the sampled data still has many questions, the results consistently show a return estimate below the trend line. If that happens, it would further tighten corn stocks and should lead to price support. Since maize is the cheapest and most abundant food source, this will affect the flow of wheat and barley.
The rebound was very welcome after agricultural commodity markets posted sustained losses due to a perception of stockpiling among major exporters, rain across Australia’s crop belt and growing areas in American lines, and the continued success of the Black Sea grain corridor.
The latter is largely psychological, the flow of cereals is only weak but it is symbolic that the supply problems that we thought were insurmountable actually have a chance of succeeding.
The price of wheat in Russia and Ukraine is really cheap and likely to set a ceiling if (and that’s a big IF) grain can start flowing like before. Ukrainian-origin grains are likely to remain cheap to help revive the agricultural economy in time to finance next season’s winter wheat crop, which is expected to be planted within the next month.
The pace of exports out of the Black Sea remains a concern. Since the opening of the grain corridor, 30 ships have left Ukraine containing about 700 kmt of grain (virile maize). It is believed that Ukraine could supply up to 2 million tons per month, so the first point highlights the difficulties ahead. Similarly, Russian exports are lagging behind. To reach their export target of 44 mmt, around 5 mmt per month are needed. At this stage, only 3 mmt per month are reached. Buyers of Russian grain struggle to obtain letters of credit and transport and insurance costs erode any advantage of cheaper origins over other exporters (i.e. Australia). But the longer the corridor remains open and the more importers manage to obtain grain from the Black Sea, the lower the risk premium could be.
There remains an increased risk with the ongoing war in Ukraine. Missile attacks were again recorded around the port city of Nikopol, near the nuclear power plant in the center of the front line. The power station, the largest in Europe, is used as a Russian base and weapons depot and is obviously a very sensitive target.
Demand for European cereals is booming. The French formation is solidly booked with 1.4 mmt on the rod for August. Business mainly includes destinations in North Africa and the Middle East. China has also reserved at least 5 Panamax vessels for delivery in November/December. We would expect French wheat to start being priced at a premium due to extremely low river levels across Europe, creating a bottleneck in moving stock from the country to port. The drought, considered the worst in 500 years, is also raising concerns about the ability of winter-seeded crops in the new 22/23 season to establish themselves in time before the colder months arrive.