Insight Focus
- All grains rallied last week as Russia invaded Ukraine.
- Exports were suspended, jeopardising over 2m tonnes of nominated shipments.
- This has worsened an already tight supply picture.
Nixal’s Forecast
Our price forecast for 2021/22 (Sep/Oct) Chicago corn remains unchanged in a range of 5.3 to 5.8 USD/bu.
There’s an upside bias as dry weather continues to hinder South American crop development. Russia’s fertilizer export ban and likely disruptions to the Ukrainian corn planting season add to this.
The average price since the start of the new crop is running at 5.77 USD/bu.
Nixal’s Market Commentary
Last week went from bad to worse as Russia launched a full-scale invasion on Ukraine.
Grains exports were immediately suspended, prompting rallies across the board. 1.7m tonnes of corn and 600k tonnes of wheat were meant to be loaded across the next few weeks, but these shipments won’t likely materialise in the short term.
Together, Russia and Ukraine account for 30% of the world’s wheat exports and 20% of the world’s corn exports. These disruptions will therefore add to an already tight grains supply picture.
To put things into perspective, global grains stocks should fall by some 6m tonnes with stock draws on the cards for both wheat and soybean.
Wheat has already been planted in the Northern Hemisphere, but corn and soybean have not. Corn planting will likely commence in a few weeks and Ukraine should produce 42m tonnes, up 12m tonnes year-on-year. However, if there’s any disruption to planting in Ukraine, the global grain outlook will be tighter still.
On top of this, Russian fertiliser exports have been suspended at a time when Brazil is planting its second, larger corn crop, and the Northern Hemisphere is about to start planting. Conab in Brazil said January’s fertiliser imports were 15% down year-on-year, thanks to the situation in Ukraine. As the situation has deteriorated further, imports will be significantly lower in February and March and should negatively impact yields.
Further to these disruptions, the limited use of the SWIFT system by Russian banks and the sanctions directed to specific banks may also cause problems for transactions.
Aside from the situation in Ukraine, the MARS bulletin published last Monday said winter crops are in good condition in Northern Europe but not in southern regions, which could suffer resulting in lower yields.
Brazil’s soybean harvest is now 33% complete, up 17.5% year-on-year. Meanwhile, its first corn harvest is 20.2% complete, and planting for its second is 46.4% complete, up 20.4% year-on-year.
Dry weather in Argentina and South Brazil continues to worry farmers and soybean yields may drop further. In Brazil, the Abramilho Corn Association lowered its production forecast for the first corn crop to 21m tonnes, down 6.9m tonnes on dry weather.
Rains are expected in South America this week but supply disruptions out of the Black Sea will be the main focus this week. Expect volatility and the risk premium to remain in the market unless there are clear signals that grain flows in the Black Sea region will resume.
Other Insights That May Be of Interest…
Ukraine & Grains: Who is Most at Risk?
Russian Invasion Sends Wheat Prices into Overdrive
Explainers That May Be of Interest…
