US wheat field rain

This week, Moscow has repeatedly made comments about walking away from the Grain Corridor unless their demands around sanctions aren’t met. We suspect the market initially waved the threats off, suspecting this was another bargaining attempt using blunt force. Simultaneously, Russian grain inspectors hampered loading progress by stopping inspections, albeit temporarily. With less than 30 days until the Russian ‘deadline’ for the corridor is to expire, the market is suddenly thinking there might be an element of truth here.

Earlier in the week, European futures (MATIF) got a good kick-along as several EU countries voted against allowing the transit of Ukrainian goods across their borders. Slovakia, Bulgaria, and Poland have complained that the movement of Ukrainian grains has come at the detriment of domestic prices. It is a sensitive issue with elections looming in those countries and politicians from both sides looking to win the farmer’s vote.

Poland has since agreed to the transit so long as there are guarantees that no grains are unloaded. Hungary is still talking about a temporary ban on allowing the importing of Ukrainian goods, although if the EU Commission were to flex its muscle, it is not going to end well for the individual states.

The latest US winter wheat conditions continue to deteriorate.  Crops rated good to excellent held steady at 27%, but the portion rated poor to very poor increased by another 2% to 39%.  Some parts of Kansas saw thunderstorms that dropped 20-25mm, but the falls were isolated.  The seven-day forecast has renewed optimism about broader rains although there is some concern that the damage has already occurred. 

Forecast rains are also expected to arrive across the Canadian Prairies, just in time for seeding. The official Canadian forecaster, StatsCan, estimates that their farmers plan to plant around 21-22 million acres of canola this season.  This could result in a crop of 20mmt (compared with 18mmt last year).  While the domestic crush for biodiesel is expected to eat into a fair portion of the exportable surplus, the fact of the matter is much of the increased refining capacity is yet to come online.

The week ahead….

 It remains a tough market to navigate.  Should the forecasted North American rains materialise, it will remove some of the risk premium built into prices.  At the same time, the grain corridor deadline will make the trade nervous.  Moscow is becoming well known for its thinly veiled threats to achieve better outcomes at the negotiating table.

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Data sources: Reuters, World Ag Weather, USDA, Next Level Grain Marketing, Mecardo

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