Insight Focus
- Talks of a potential safe corridor to export Ukrainian grains intensified last week.
- Last week’s price correction may trigger consumer buying.
- Early European wheat yields are well below average.
Nixal’s Forecast
No changes to our price forecast for 21/22 (Sep/Oct) Chicago Corn to be around 6,6 USD/bu in average for the crop.
The average price since the new crop started is running at 6,55 USD/bu.
Nixal’s Market Commentary
The week was negative for grains in all markets on harvesting pressure, favourable weather in the EU and US, continued talk of a Black Sea export corridor, and fears of lower demand if recession finally arrives.
The negative macro sentiment of major economies heading to recession did not help with a lot of talk around weakening Chinese demand.
We also had a typical weather market behaviour with volatility on the back of hot and dry weather one week and then favourable weather another week.
Talks of a potential safe corridor to export Ukrainian grains intensified last week which is the major bearish element we have in the market as we have been signalling for some time now.
On the supply side, US Corn planting is now finished and condition fell two percentage points to 70% good or excellent vs. 65% last year.
In the Black Sea region, Russia finished spring planting in 1m hectares more than last year but Corn production is expected to grow marginally to 15,5m tonnes vs. 15,2 last year.
In Ukraine and despite efforts last week from the European parliament visiting the Polish-Ukraine border and trying to figure out ways to increase the export flow, the reality is that there is no significant improvement in those flows and some 20m tonnes of grains remain stuck in the country. The current pace is around 1,5m tonnes of exports per month vs. 6,5m tonnes in average before the war started. Ukraine’s second biggest port was attacked last week and two grain terminals were hit, but the market didn’t react to that.
In Brazil, safrinha Corn is 11,4% harvested much quicker than last year’s pace of 2,8%.
On the demand side, recession fears were somehow justified as Chinese May stats showed imports of grains fell due to lockdowns resulting in lower demand. Corn imports year to April are down by 2,9%.
In the Wheat front, the MARS bulletin from the EU reduced again their Wheat yield projection for Europe due to dry weather leaving it below the five year average. Harvesting has started in the south of Europe and yields are certainly showing terrible values. Harvesting has also started in the US and in Russia.
There continues to be talk around a bumper 89m tonnes crop in Russia vs. 81 the USDA is projecting and vs. 75m tonnes produced last year. This would basically eliminate the global deficit the world S&D is showing.
US winter Wheat condition worsened one point to 30% good to excellent vs. 49% last year. Winter Wheat is now 25% harvested vs. 15% last year. French Wheat condition fell again another percentual point now 64% good to excellent vs. 79% last year and harvesting has started being 2% complete.
On the weather side, temperatures in France surpassed 40ºC at the beginning of last week but the rest of the week saw a big drop in temperatures. The ag ministry said those hot temperatures should have a limited impact on Wheat as the season is well advanced.
Rains and milder temperatures have arrived to the US and Europe. A mix of rain and sunshine is forecasted this week in the main US growing regions. Europe is expected to receive rains and cooler temperatures too. Brazil is expected to remain dry except in the south where rains are expected.
The correction of the last few weeks has been significant, and in part makes sense as we approach harvesting season when supply is available. Despite the correction, both Corn and Wheat continue to trade above levels when the war in Ukraine started on Feb 24: Chicago Corn is 7% higher, EU Corn is 12% higher and EU Wheat is 22% higher. Is there further downside risk? We think it will be a matter of the final size of the Russian Wheat crop and the export flow out of Ukraine.
The global Wheat S&D from the latest WASDE forecasts a 12,5m tonnes stock draw with Russia producing 81m tonnes. If local analysts are correct and Russia is up to around 89m tonnes -certainly they had perfect weather and ample supply of fertilizers- most of that global deficit will be reduced.
The correction last week may trigger some buying and will attract consumers so we could well see some support or positive week. But as the Wheat harvest accelerates, and favourable weather persists we should see good selling interest.
Still, the high price environment should stay and the only serious downside risk continues to be the safe corridor finally allowing Ukrainian exports by sea.
The week was negative for grains in all markets on harvesting pressure, favourable weather in the EU and US, continued talk of a Black Sea export corridor, and fears of lower demand if recession finally occurs. The correction last week may trigger some buying and will attract consumers so we could well see some support or positive week. But as the Wheat harvest accelerates, and favourable weather persists we could see further selling. Still, the high price environment should stay and the only serious downside risk continues to the safe corridor finally allowing Ukrainian exports by sea. No changes to our price forecast for 21/22 (Sep/Oct) Chicago Corn around 6,6 USD/bu in average for the crop. The average price since the beginning of the crop is running at 6,55 USD/bu.
