Wheat crashes and China dumps US corn

It was a terrible week for wheat, with DEC-23 CBOT prices plummeting close to 7%, down to AUD$374/ton. Over the course of April so far, CBOT wheat prices have fallen 11%, clocking up the largest monthly decline seen since November 2022. In tandem, US corn prices have fallen to levels not seen since June 2022, indicating that there is significant pressure on the cereal complex across multiple commodities.

Locally in Australia, selling pressure from producers for cash wheat has been light with sowing activities taking the front seat for the time being, with the less attractive prices in the market compared to recent times not helping to encourage supply. Meanwhile, buyers have shown little urgency to add to volumes and accumulate wheat resulting in a market that is drifting sideways.

Russia is doggedly reiterating the May 18^th deadline for the end of the current grain corridor deal in the black sea, which has resulted in uncertainty for trading out of the black sea, and buyers are increasingly turning to alternative origins to mitigate the risk. Russia’s complaint is that the Ukrainian end of the deal is working smoothly, but in practice, Russian exports of grain and fertiliser are being impeded by sanctions on its payments, logistics, and insurance industries. One of the five key demands Russia has listed involves the full unconditional reconnection of the Russian Agricultural Bank to the SWIFT payment system. Russia’s position appears more determined, with Ukraine concerned that an end to the deal is not just an empty threat this time around.

Poland, Hungary, Bulgaria, and Slovakia have slapped an embargo upon Ukrainian grain imports till June due to a perceived glut of Ukrainian grain flooding central Europe, suppressing prices for local producers. While the UE commission has rejected the unilateral bans, there is no indication of significant consequences being levelled against them as a result. The broader implication of the change is that this move is a sign that support for Ukraine within the EU is beginning to fracture. The core problem has been that the intention of tariff-free entry of Ukrainian grain into the EU was for it to be subsequently re-exported into other countries, in practice it has remained stranded, due to logistics issues.

China’s sudden cancellation of two US corn orders totalling 560,000 tonnes this week has impacted the outlook for US corn, with the expectations that China has pulled back from US origins in preference to looking towards Brazil, which is tipped to produce a more ample, and price competitive crop this year.

Weather conditions in the US are favourable for planting corn & soybeans, with forecasts of solid rains on the US plains underpinning expectations for higher production. As a result, the market is becoming wise to the fact that competition to offload production may be stiff in the coming season, putting downward pressure on prices.  In addition, the latest Statistics forecast has Canadian farmers currently tipped to plant 27 million acres of wheat, which, if it happens, will be the largest area of wheat in 22 years.