Odessa,,Ukraine,-,August,9,,2021:,Loading,Grain,Into,Holds

Expectations of lower Australian and Argentinean wheat crops have not been enough to stall the drop in CBOT wheat prices. This week, Chicago fell to multi-year lows as the market digested news of two cargoes being loaded in the Ukrainian port of Chornomorsk.

While only small volumes, the ‘safe’ transit of these vessels is significant, as it shows there is a possibility that normal grain trade could resume. It is not confirmed if the vessels were insured nor who underwrote the vessels. How does Russia respond? I would have thought it unlikely this development would go unanswered. Further to the uncertainty and risks of the black sea trade, a bulk carrier is believed to have struck a mine in the Black Sea off the coast of Romania. The cause of the explosion is still to be confirmed, but it does highlight the significant risks that still exist in the area.

Also, this week, China bought between 5 and 10 cargoes (60kmt each) of French wheat for the November- March transfer. This marks the first purchase of French wheat for the year. It is thought that China was weighing up purchasing Australian grain, but the fall in European prices (courtesy of Russian influence) saw the business go to France.

Egypt (GASC) also bought 120kmt of Romanian-origin wheat at around US$256 FOB highlighting the competitiveness of European offers. This should help to shore up European prices.

Argentina caught a break a week or so ago with some scattered showers helping to lift crop condition from 18% to 24% good to excellent. However, the areas that missed out will continue to struggle, evidenced by the fact that production estimates did not shift from the 15mmt previously forecast. Current FOB numbers are quoted at US$280/t but these could come under pressure as the Argentine trade remains desperately quiet with no business reported. If prices start to get to the point where they make sales into SE Asia, it could start to replace Aussie origin.

Looking forward, the cheap and plentiful wheat coming out of the Black Sea will likely cap any rallies in the short term. US corn and soy harvest will start to ramp up in the next week with new crop sales also likely to keep pressure on feed grains. Look for some kind of consolidation in global prices as we move towards an increasingly uncertain Southern Hemisphere harvest.
 

Next week

We may see a bounce as importers are taking advantage of low prices. Closer to home, the trade is trying to engage with the grower by offering cash prices with a basis approaching those seen in drought years. It remains to be seen if that strength in the cash market can be maintained once the grower decides to sell.

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Data sources: Reuters, Next Level Grain Marketing, Mecardo

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