It’s life Jim, just not as we know it

As mentioned in last week’s wrap up, there is mounting concern in the market about the slow pace of Russian winter wheat seeding and the drought that has gripped both Ukraine and the South and Central parts of Russia. Reuters reports that seeding pace is at an 11-year low and trailing about 10-15% behind average. Most of the Southern cropping regions have the ideal seeding window open until mid-October, so rains are becoming increasingly important.

Models are roughly aligned for the next seven days remaining dry, however the second week period looks to trend wetter. Should the Russian crop go in dry and see relatively poor establishment by the time the temperatures dip sufficiently to bring on dormancy, the market will add a degree of risk into prices. This should carry through the Russian winter and bring with it heightened ‘spikes’ each time there is a perceived risk to the crop. But as mentioned last week, the Russian cropping zones have actually benefitted from a changing climate, becoming more moderate instead of the brutally cold conditions that the Eastern winter was previously known for.

Should this trend continue and the winter sown crop sails through the winter period, it could come into Spring in relatively good shape. This would pull the rug on any risk premium that had been built in. There is a good amount of psychology built into the market that can be simply explained as a fear of the unknown.

There is also a lot of chatter about dry conditions in Brazil. As it stands the soybean sowing program is less than 1% complete and behind the average pace, but only slightly. Soybeans can be sown up until the start of November without fears of yield penalty. So, at this stage, any talk of a dry Brazil and its immediate effect on the agricultural markets is probably premature. China has recently started to purchase more US soybeans, which is perhaps a sign that Brazilian beans are finding logistics harder due to low river levels impeding up country transport to port.

Slow US export pace added some balance to the risks described above. FOB prices for US SRW track around US$255 compared to the red-hot Russian FOB values of $217 (+$2 for the week).  SovEcon estimate that Russian export pace hit another record for the month of September showing that demand is not totally absent from the market. For prices to rise globally, we are going to have to see Russian and Ukrainian FOB values consistently rise so that the demand is shared more equally. China, as such a large consumer, remains the dark horse in the race. An economic stimulus program released by Beijing is hoped to provide some strength to commodity markets going forward.