Silo's

Will they, or won’t they? As the Russian stipulated corridor deadline approaches, the UN has been facilitating talks aimed at extending the deal. As of last night, the talks have amounted to nothing. The UN claimed it was progress, and that talks would continue at a ‘tactical’ level. However, it is becoming less certain that the grain initia-tive will continue in its current form.

Recent articles would suggest that this might not be the ‘end of the world’ should the grain corridor cease to exist.  It would certainly hurt the Ukrainians, but in terms of grain trade, the fact that Russia is hitting record export pace, and new crop is just around the corner, the overall damage to world supply would be manageable. The fact that despite some very credible threats to current supply channels have come and gone, the market has barely blinked.

 

Russia continues to pull the strings on global wheat prices.  Recent tenders of Russian origins saw the ‘floor price’ of US$275 FOB breached again.  Algeria recently purchased Russian wheat at the equivalent of US$245.   European FOB values have also fallen as their new season crop continues to look good and they need to remain competitive with their Eastern neighbour. The fact that Ukrainian wheat production could fall as low as 16mmt this year, is being overshadowed by the 85mmt Russian crop forecast on top of large carryover stocks.

 

The USDA will release its May stocks report tonight.  Trade analysts expect US corn stocks to be 53% higher and soybean stocks up 38% than a year ago. This would explain the recent weakness in row crop prices.  While US wheat stocks are expected to remain unchanged, the fact that US wheat is too expensive on the global stage is unlikely to be a game changer.

 

It is possible that the US will start to “price in” domestic premiums as drought bites in the Hard Red Winter (HRW) areas and a delayed spring wheat sowing campaign means that US wheat is being priced higher that Russian and European values. This threatens to further skew CBOT as our primary price discovery tool against European prices which are increasingly being used as global price setters.

The week ahead….

Soon we’ll transition out of the ‘weather market’ as Northern Hemisphere crops become known. Without any production threats, expect prices to remain under pressure.

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Data sources:  Argus, Freightwaves, Reuters, Next Level Grain Marketing,  Mecardo

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