Drone image of farm

One week on from the calamitous Russian grain corridor roller coaster and it's like nothing happened. In fact, a newfound sense of confidence that the grain corridor will persevere has seen wheat futures slide to mid-September levels.

Recently Turkey has suggested that the corridor be given a 12 month renewal ahead of the current expiry date.  The original agreement had the corridor open for 120 days.  Outside of the recent Russian flip flop, the initiative has been a success with nearly 15mmt grain shipped.  If the new recommendations are observed, a 12 month tenure would give the market more confidence that the Black Sea was indeed open for business.

Russia might be gaining some traction over a perception that the exports of food and fertilisers were facing unnecessary hurdles in the form of hidden sanctions. Western leaders might be more sympathetic to opening up trade access, especially in light of recent Russian losses and retreat from occupied territories.  Failing a new military escalation, the market feels like it is losing some of its risk premium.

This week, the USDA released their November S&D update.  Not a whole lot of surprises as most of the figures released were within trade estimates.  As usual however, the USDA takes a conservative line.  As a brief overview, global wheat supply is up, use is up and ending stocks increase slightly.  Notably Australian production lifted from 33mmt to 34.5mmt, Argentinian production dropped from 17 to 15.5mmt and Russian production left at 92mmt. 

For reference, CONAB (a South American analyst) estimates Argentina’s wheat at a drought-ravaged 11.7mmt – down from 23mmt last year.  SovEcon also make the point that Russian recorded bunker weight is 100mmt so the USDA seems a little late to adjust.

The corn market is also experiencing something of its own existential crisis.  Global stocks are tight enough that price support seems logical, however a slow export pace and a forecast of falling demand is putting a real dampener on corn prices.  Add to this a potential huge South American crop could swing the stocks needle back to a far more comfortable position. China hasn’t stepped up to the plate and is instead purchasing Brazilian corn.  There is a long way to go, especially with the spectre of a lingering La Niná hanging about.  The market will need to get some clarity on the size of the Brazilian crop before letting US corn go entirely.

Next week

Last night, equity and financial markets dumped the USD as reports suggested that inflation had peaked and that the US Fed may slow interest rate hikes. This may improve the competitiveness of US commodities on global markets resulting in a pickup of export business. 

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Click on graph to expand

Click on graph to expand

Data sources: USDA, Reuters, CONAB, SovEcon, Ukr Min of Ag,  Next Level Grain Marketing

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