To paraphrase the old Footy Show, it's been a BIG week in grain markets. It all kicked off last Friday with the USDA's July supply and demand report. Wheat balance sheets were expected to tighten, and the report delivered.
US ending stocks came in lower – albeit marginally above trade expectations – while global wheat stocks declined broadly in line with forecasts, sparking a solid 20-cent rally in futures. Corn also found support. Strong export demand continued to eat into global inventories, with ending stocks falling well below market expectations.
At the same time, Europe is becoming an increasing concern. France’s crop condition ratings slipped again to just 47% good-to-excellent – the lowest level in 15 years and an 11-point decline in just one week – as heat stress continues to bite.
Then came the development that really made the market sit up. After successfully targeting Russia’s so-called “shadow fleet” – mainly unregistered oil tankers – Ukraine has effectively forced Russia to close the Kerch Strait. This narrow waterway linking the Black Sea and the Sea of Azov is a key export corridor, handling around 25% of Russia’s wheat and sunflower shipments. Russia has responded by intensifying attacks on Ukraine’s export terminals further disrupting Ukraine’s wartime economy.
For grain markets, the concern is obvious. The longer the Kerch Strait remains closed, and the more Ukraine’s export terminals are compromised, the greater the risk of supply disruptions and export delays.
For now, Black Sea exporters – including Russia, Ukraine and Romania – continue to move new-crop wheat despite subdued nearby demand. That has left the market in a “wait and see” mode. Russia is still expected to harvest around 90mmt of wheat, which will eventually need to reach export markets. If shipments are delayed, there’s a risk larger export volumes could hit the market just as Australia begins its own harvest, creating stiffer competition for demand.
Adding another layer of uncertainty, the ceasefire between the US and Iran has fractured and Iran have closed the Strait of Hormuz. The US responded with major air strikes, pledging to protect commercial shipping and maritime trade. Disruptions through Hormuz threaten energy supply chains just months before Northern Hemisphere winter crop planting begins in October and November. Combined with Russia’s diesel export ban, the market may have to rapidly find alternative supply routes to avoid fuel shortages and higher input costs ahead of planting.
Next week
This latest escalation is another reminder that cheap food and cheap fuel cannot be taken for granted. Trade will eventually find alternative pathways, but they rarely come without additional cost. Higher freight, insurance and fuel expenses ultimately flow through the supply chain, adding pressure to already thin production margins and keeping risk premiums firmly embedded in commodity markets.
Wheat markets are behaving a little differently these days, with the forecasted El Nino and continuing disruptions in supply due to the conflict in Ukraine,
The Ag commodity markets have largely tread water this week, with the much-anticipated USDA data dump keeping most participants on the sidelines. Traders made only
Despite consuming more grain than ever locally, Australian feed grain prices usually follow international values closely as we are still a large exporter. In the
Independent analysis and outlook for wool, livestock and grain markets delivered to you as it’s published
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Join the Mecardo team for the Commodity Conversations podcast, where we provide short weekly market recaps and longer conversations with guests to discuss the drivers and trends in livestock, grain and fibre markets.
Our team of market analysts are recognised as leaders in Australian Ag market analysis, providing invaluable insights to help you navigate the ever-changing commodity landscape.
We don’t just bring you the most up to date market insights. Find out more about Mecardo’s services including risk management advisory, modelling, benchmarking, research & consultancy.
Black Sea Risk Rises
US ending stocks came in lower – albeit marginally above trade expectations – while global wheat stocks declined broadly in line with forecasts, sparking a solid 20-cent rally in futures. Corn also found support. Strong export demand continued to eat into global inventories, with ending stocks falling well below market expectations.
At the same time, Europe is becoming an increasing concern. France’s crop condition ratings slipped again to just 47% good-to-excellent – the lowest level in 15 years and an 11-point decline in just one week – as heat stress continues to bite.
Then came the development that really made the market sit up. After successfully targeting Russia’s so-called “shadow fleet” – mainly unregistered oil tankers – Ukraine has effectively forced Russia to close the Kerch Strait. This narrow waterway linking the Black Sea and the Sea of Azov is a key export corridor, handling around 25% of Russia’s wheat and sunflower shipments. Russia has responded by intensifying attacks on Ukraine’s export terminals further disrupting Ukraine’s wartime economy.
For grain markets, the concern is obvious. The longer the Kerch Strait remains closed, and the more Ukraine’s export terminals are compromised, the greater the risk of supply disruptions and export delays.
For now, Black Sea exporters – including Russia, Ukraine and Romania – continue to move new-crop wheat despite subdued nearby demand. That has left the market in a “wait and see” mode. Russia is still expected to harvest around 90mmt of wheat, which will eventually need to reach export markets. If shipments are delayed, there’s a risk larger export volumes could hit the market just as Australia begins its own harvest, creating stiffer competition for demand.
Adding another layer of uncertainty, the ceasefire between the US and Iran has fractured and Iran have closed the Strait of Hormuz. The US responded with major air strikes, pledging to protect commercial shipping and maritime trade. Disruptions through Hormuz threaten energy supply chains just months before Northern Hemisphere winter crop planting begins in October and November. Combined with Russia’s diesel export ban, the market may have to rapidly find alternative supply routes to avoid fuel shortages and higher input costs ahead of planting.
Next week
This latest escalation is another reminder that cheap food and cheap fuel cannot be taken for granted. Trade will eventually find alternative pathways, but they rarely come without additional cost. Higher freight, insurance and fuel expenses ultimately flow through the supply chain, adding pressure to already thin production margins and keeping risk premiums firmly embedded in commodity markets.
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Click on graph to expand
Click on graph to expand
Data sources: Next Level Grain Marketing, Reuters, Bloomberg, USDA, Zaner Ag, Sov Econ, Mecardo
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The risks are obvious but can be managed
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Independent analysis and outlook for wool, livestock and grain markets delivered to you as it’s published
Listen to the podcast
Join the Mecardo team for the Commodity Conversations podcast, where we provide short weekly market recaps and longer conversations with guests to discuss the drivers and trends in livestock, grain and fibre markets.
MEET THE TEAM
Our team of market analysts are recognised as leaders in Australian Ag market analysis, providing invaluable insights to help you navigate the ever-changing commodity landscape.
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We don’t just bring you the most up to date market insights. Find out more about Mecardo’s services including risk management advisory, modelling, benchmarking, research & consultancy.