AGRIColumn - issue 18/2023

This week’s market report provides information on:

WHEAT MARKET

BARLEY MARKET

CORN MARKET

RAPESEED MARKET

SFS MARKET

SOYBEAN MARKET

EXTRA

CONSTANȚA LINE-UP

EUR-USD PARITY

FOSSIL ENERGY

WEATHER FORECAST

LOCAL STATUS

Wheat quotes in the Constanța CPT parity reached a level of 217 EUR/MT, in the CPT parity. Feed wheat has a difference of minus 7 EUR/MT within the discount term.

The new crop is valued at 207- 208 EUR/MT and the feed quality discount is 10 EUR/MT.

CAUSES AND EFFECTS

The regional status is one that does not put on hold at this time. We have to go through an important decision round for the current state of Romanian farmers. And we would put a lot of emphasis on the political factor at the moment, which does not indicate a clear direction for the future of farmers. We explicitly refer to the next challenge that the European Commission has to manage, namely the extension of the import ban for Ukrainian goods in the 5 countries of the proximity bloc.

Because this is an extremely important factor in the economy and welfare of farmers. In the scenario in which the import ban is extended until December 31, 2023, Romanian farmers will be able to access the Romanian domestic market under normal conditions, we could say. Thus, they will be able to sell the goods and, implicitly, the grain under conditions of normal competitiveness, in a fair market, governed by supply and demand.

But from a price point of view, the Weather dictates the market right now and as we saw in the WASDE report published earlier today, we have generated changes in the US winter wheat volume forecasts.

However, the quality of the wheat and a late harvest should make Romanian farmers think, because the rains that have fallen and those that will come during the next week have not been able to make things go normally.

We are referring, first of all, to a delayed harvest, to a higher volume of wheat, estimated today at over 10.5 million tons, and to a deterioration in the quality of wheat generated by precipitation. This should indicate further easing of the price level in conditions of plenty.

In the same regime, a decision to stop the import ban would generate extreme pressure on Romanian production, for two reasons. On the one hand, a volume from Ukraine will be much easier to sell in Romania, so with a much-reduced logistical effort. Also, due to the transit of Ukrainian goods, a much higher logistics cost will be generated going forward, as well as a lack of availability on this extremely important level, namely the movement of goods.

REGIONAL STATUS

RUSSIA. Next season’s Russian crop is degraded in terms of volume to the level of 81.5-82 million tons. We do not find that a degradation of future potential will impact Russia’s position. The ending stock that will remain after the end of this selling season (15.5 million tons) will matter a lot in the global trade economy, especially since the views of local Russian analysts are somewhat different from those of the USDA.

UKRAINE, identical to Russia, has a vision with degradations of future harvest volumes, up to around 16.5-17 million tons. But here we can have positive adjustments, as time will pass, because the final volumes will be known only after the harvest. And, naturally, there are the volumes from the areas of Russia, which will find a destination. Will they feed Russia? 100% yes, this season, as the situation on the field indicates this.

THE EUROPEAN UNION receives a crop forecast that raises the total level, milling wheat and durum, to the level of 139 million tons, which is an increase of 4.7 million tons. Here we have to separate the values in the wheat class and quantify the milling wheat class at the level of 130-130.5 million tons. But because of the Weather factor, we also have concerns here about the level of wheat volume with milling quality in relation to feed. Germany in particular is very concerned about the share of feed grain in the total amount of the crop. Heavy rainfall reduces the quality of grain and the much lower share of milling grain compared to feed grain could lead to loss of export markets for Germany.

EURONEXT – MLU23 SEP23 – 234.75 EUR (-9.25 EUR vs. last week)

EURONEXT WHEAT TREND CHART – MLU23 SEP23

GLOBAL STATUS

The USA, through the WASDE report, lowers the winter wheat crop forecast. And it’s doing so in a steep way, generating a cumulative winter and spring wheat crop of just 45 million tons, up from the previous season, but not by much. Thus, we are effectively going back about 4.5 million tons in negative weight on the US Central Plains.

CANADA, on the other hand, gets a volume forecast of 3.2 million tons, bringing it up to 37 million tons in volume. In this way, Canada partially offsets the US crop loss.

INDIA gets a positive outlook, taking it to 110 million tons, up from 104-105 million tons.

CHINA is confirmed by the 140 million tons, so the increase of 4 million tons is a support in the WASDE report.

AUSTRALIA, on the other hand, degraded in the crop plan that will follow from these changes between La Niña and El Niño and the value of 29 million tons is quoted.

ARGENTINA has a future indication of 19.5 million tons, in line with their production in a normal year in terms of weather. But it is premature here to talk, because the sowing season is starting, and the rainfall is still lacking, so the question mark on the new season, which has not started and is already experiencing obvious difficulties.

INDIA remains unchanged at 107-108 million tons.

CHINA similarly indicates about 140 million tons, 4 million tons more than the previous season, which will reduce import levels with the crop surplus.

We will modify the global forecast table accordingly when certainty replaces the forecast, towards increased data accuracy.

CBOT WHEAT – ZWU23 SEP23 – 646 c/bu (-25 c/bu = -9.5 USD/MT vs last week)

CBOT WHEAT TREND CHART – ZWU23 SEP23

WHEAT PRICE INDICATIONS IN MAIN ORIGINS

TENDERS AND TRANSACTIONS

OAIC ALGERIA priced 570,000 tons of wheat at 276 USD/MT, C&F. Ameropa 60,000 tons, Aston 60,000 tons, Dreyfus 60,000 tons, Cam 60,000 tons, Lecureur 60,000 tons, Olam 60,000 tons, Sierentz 30,000 tons and 120,000 tons are the most popular.

CAUSES AND EFFECTS – THE STORY

Commercially, following the WASDE report, wheat gets an upgrade in terms of volume factor, which is low in two important origins, Russia and the US. But globally, wheat production is up. Offsets from other origins cannot be altered by the degradations we observe in WASDE grades. And thus, we arrive at a total global figure of 790 MILLION TONS OF WHEAT. With the existing volume figure in mind, we need to nuance one more thing, namely European and North American stock market indications. Comparing the developments between 7 days, we actually note a decrease and not an increase in indications, this despite the increase indicated by the CBOT at the end of the session, more precisely after the release of the WASDE report. We thus have a negative spread of over 9 EUR in Euronext as well as one of over 9 USD in CBOT as a comparator in our observation. We are now taking into consideration the state of affairs in the European region and the Black Sea basin, and things will be weighted in the next period, because there are three factors to clarify:

The extension of the Cereal Corridor, an aspect that is pushed by statements in the positive and negative sense alike, to increase tension and uncertainty, a fact that will feed the headlines, which, in turn, will generate activity in the trading algorithms.
The elections in Turkey. The factor of uncertainty is the current President Erdogan, who, if he loses the elections, will leave the role he assumed as Negotiator between Russia and the UN regarding the crossing of Ukrainian goods from Odessa to the Bosphorus.
WASDE, which already in characteristic style, put a brake on the degradation of the price of wheat by decreasing the productions in Russia and the USA. But we know the social role of the USDA, which acts as a balancing factor between Origins and Destinations. We know that in this exercise, the USDA only wanted to impress upon the market a lower rate of price degradation in light of a superb global wheat crop, and at the same time reduce Russia’s shadow over global trade by reducing them in terms of the next crop level.

CONCLUSIONS

USDA wanted to direct the eyes of Destinations to other Origins, not only to the Russian one.
Tempering the downward spiral in the price of wheat by degrading the Origins does nothing but provide support to Northern Hemisphere Ferries. Because the latter had very high start-up costs in the fall of 2022, and today’s price levels do not cover the financial effort, so many of them will have a negative rebound in terms of operating margin on the wheat product.
The grain route is clear to everyone, and the uncertainty of the Corridor is only apparent. Judging by the volumes allocated for export from Ukraine, they are much lower than in the previous season, and they will certainly be redirected through the lines of European solidarity. The Corridor is no longer an alternative, the costs generated by waiting in Istanbul make logistics extremely expensive through the Corridor. For example, on an Odessa-Alexandria (Egypt) route, the transport cost is 50-52 USD/MT, compared to 13 USD/MT from Constanta and the pseudo price in Novorossisk Russia of 18-20 USD/MT.
Russia will maintain its export course, continue to generate high volume and be highly competitive, but all at a price. We are referring to the price discount, which in the medium term will degrade the price of wheat globally, despite the Russian willingness to sell high.
And last but not least, Turkey’s influence could shift its focus by removing Erdogan from power, an Erdogan who has used the strategic influence of the Bosphorus Strait to national financial benefit by attracting cheap goods from Ukraine as well as from follow. Russia.

We repeat, in the medium term, the price of wheat will decrease. The export potential of the Origins is obvious, taking into account the demand of the Destinations, as well as the cargo volume of the 2023-2024 season, of 790 million tons.