AGRI Column - issue 39/2022

This week’s market report provides information on:

WHEAT MARKET

BARLEY MARKET

CORN MARKET

RAPESEED MARKET

SFS MARKET

SOYBEAN MARKET

CONSTANȚA LINE-UP

EUR-USD PARITY

FOSSIL ENERGY

WEATHER FORECAST

LOCAL STATUS

The exporters’ indications for wheat in the CPT Constanța parity are anchored around the values of 335-337 EUR/MT. The discount for feed wheat is still at the level of 25 EUR/MT. Domestically, purchase price levels remain unchanged at 320-325 EUR/MT.

We are in the sowing window and it is a favorable moment for Romanian farmers. They are speeding up the process, since we are on October 17, 2022 and there is not much time left, especially since the night temperatures are starting to drop around 7 degrees, which does not help the germination of plants. The soil water reserve is not optimal, precipitation is not on the horizon until the end of October, but if it comes at the beginning of November, it could be an excellent start for Romanian wheat.

CAUSES AND EFFECTS

In Romanian farms there is extremely much unsold wheat and this is a cause for the future effects. Practically, a lot of inputs are due towards the end of October, and some of the goods have to be sold.

The problem is that physical market fundamentals, as they are identified today, do not show any upside potential for the price of wheat. Only the impulses generated by the Russian attacks and political statements move the market a little, but these headlines generate movements in the virtual market only. The effects in the physical market are much more limited. There is simply too much wheat in the market.

REGIONAL STATUS

UKRAINE predicts a much lower level of winter wheat seeding. Normally, Ukraine had a norm of 6.5 million hectares, but the information claims that they will finish close to 4 million hectares, more precisely 3.9 million hectares. What is unclear in this whole landscape is what areas are in the Russian occupation zone as well as in the conflict zone.

Surface alteration would mean production of 22 million tons in 2023, which is in line with the 20.5 million tons accumulated in 2022. But we will soon have more precise data as the seeding window closes at the beginning of the month November.

RUSSIA. On October 10, 2022, official Russian data indicated a level of 102 million tons of harvested wheat (bunker weight), i.e. cargo received at silos.

Wheat (bunker weight) = 101.9 million tons (last year at this time – 74.5 million). The yield for the current year increased from 2.8 tons/ha to 3.6 tons/ha.

In total, as of October 10, 2022, according to the Ministry of Agriculture of the Russian Federation, the sowing of winter crops was carried out on 9.56 million hectares, compared to 10.76 million hectares on the same date last year. This clearly tells us that wheat area will clearly decrease due to reduced profitability.

The EUROPEAN UNION is raised by the WASDE report with 2.7 million tons of wheat being distributed between Germany and Poland. Otherwise, in the Union, autumn sowing continues, with farmers also here in the operational work window.

EURONEXT MLZ22 DEC22 –350.75 EUR (-5.5 EUR)

EURONEXT WHEAT TREND CHART – MLZ22 DEC22

GLOBAL STATUS

The US have no changes either following the WASDE report. They therefore remain at the level of 44.9 million tons.

CANADA ends harvest at a level of 35 million tons, according to the forecast. Very small areas across Alberta and Manitoba remain harvestable, a maximum of 1% of the area. Saskatchewan has about 7% of its wheat fields left to harvest, so we can say that Canada is also closing its wheat harvest.

ARGENTINA presents an update of the crop forecast and the indication is not a very happy one. A further reduction of 0.5 million tons brings the forecast to 16 million tons. But still, the drought is present and the prospects for further reductions are predictable.

AUSTRALIA is nearing harvest time. The forecast of 33 million tons remains valid, but doubts about quality exist and will turn into certainties. Precipitation continues across the Australian continent.

CBOT ZXZ22 DEC22 – 859 c/bu (-32 c/bu = -11.75 USD)

TREND CHART – ZWZ22 DEC22

WHEAT PRICE INDICATIONS IN MAIN ORIGINS

CAUSES AND EFFECTS

These days we are witnessing a market dominated only by headlines, that is, a market marked only by impulses generated by the Russian savage bombings in Ukraine, which brought accelerated growth in the stock markets, especially on the CBOT. A savage attack on 16 Ukrainian cities in which numerous civilian targets were targeted has induced the potential for growth in trading algorithms.

After the second and third day in a row, things started to go back to normal. It was logical, because Russia could not sustain this rain of fire on Ukraine continuously. Quotations began to fall and funds began to liquidate positions by performing profit taking.

In the evening of October 13, however, Russia comes out again with statements in which they nuance the fact that they will no longer provide support for the continuation of the Green Corridor for goods from Ukraine if they are not allowed to export fertilizers.

And so we come to the forecast generated by us some time ago, namely the fact that Russia was not given what was promised by the Istanbul agreement, where it had only Mr. Erdogan and the UN through Mr. Guterres as a partner, not at all the European Union.

FROM EVERYTHING WE HAVE AS A GROUP OF DATA AND INFORMATION, WE EXTRACT THE FOLLOWING:

The United Nations has been engaged for weeks in intensive closed-door negotiations aimed at allowing Russia to transport large quantities of ammonia gas, a key ingredient in nitrate-based fertilizers, across the battle line through Ukrainian territory to Black Sea.
From there, it will be shipped to ports around the world as part of a multibillion-dollar deal expected to improve agricultural yields and alleviate world hunger. Guterres and his team are actively working to facilitate the export of Russian grains and fertilizers, the UN Secretary-General’s spokesperson wrote.
The UN believes that the ammonia pact is the key to avoiding a global food crisis. The UN tried to overcome Ukrainian objections to dealing directly with Moscow by brokering a two-party deal: Russian company Uralchem would transport its ammonia gas to the Ukrainian border, where it would be bought by an American trading company, Trammo.
Russia is effectively suffocated at this point. Wheat, gas and oil are their keys to prosperity. Gas is no longer delivered to the European Union; recent moves have decoupled deliveries via North Stream 1. North Stream 2 remains.
Russian gas is also used for fertilizers which, however, do not leave the territory of the Russian Federation. Moreover, stocks in European Union countries are frozen. Thus, Russian fertilizer production is put on hold.
Oil will also stop being delivered due to sanctions from November 1, 2022. Another major problem. Any attempt to ship via turntables will be heavily discounted. So profit will thin out majorly. The cost of extraction and logistics of Russian oil is 44 USD/barrel.
Wheat is extremely large in volume. Destinations are in hand-to-mouth mode, as they feel extremely well that the price will have to drop further. The Russian Federation sells in barter in Syria, sells in Afghanistan (with what will the Taliban pay?), sells to any destination (Algeria). 50 million tons export program means 25% of the annual global trade value. More than that, official Russian sources say that there will no longer be a maximum level of export in the period February-June 2023. It is a way of admitting that for how much wheat they have, they still lack a maximum level of export.

CONCLUSION

Russia is pushed through the labyrinth. And little by little it will reach a moment when its struggles will no longer be lucid, but chaotic. When incomes are thinned, wheat, gas, oil, fertilizers, Russia’s movements will be uncontrolled.

Mr. Putin has shifted from the sarcastic and dictatorial tone to a speech in which he says he wants to export energy and food. The boomerang of blackmail with food has already turned against him and he sees with his own eyes that the world is trying and will do without Russia.

But it must be done very tactfully. Russia must be allowed out of the maze. Under certain conditions, of course. Otherwise, a stalked beast will become uncontrollable and the damage will be immeasurable.

After all the events we see, the path through the labyrinth is already marked, and attempts to get out (with the loss of life in Ukraine) are effectively blocked. And the route will have an end that we want completed as soon as possible (we estimate at least 5-6 months). This trail started in 2014 and we don’t forget it.

Eventually the wheat will have to come out. The tax will be reduced further and the plateau on which the wheat stands today will lower further. Time will prove that the fundamentals of the physical market prevail, and they are clearly established by the numbers. The EU has a crop deficit, Ukraine has a crop deficit, Argentina has a crop deficit, the US has a crop deficit.

But the balance comes from Russia, with a gigantic crop surplus. 100 million tons covers the deficit in the EU + USA + ARG. Then Canada enters the table with a surplus of 3-4 million tons and we await Australia, which will generate much more than the 33 million tons forecast today (even if the quality will not be entirely milling wheat, it will be wheat and that is sufficient).