Romanian AGRI Column - issue 12/2022

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

LOCALLY

The local wheat market is static. The effect of the congestion of the port of Constanța and the need to ship the raw materials generate a lack of demand among buyers. There are also many sellers on this flow, which means that things do not have a growing dynamic in the case of price. We therefore record price levels of 340-345 EUR/MT in the CPT Constanța parity for milling wheat. For feed wheat, the indications are reduced by 20 EUR/MT, which is an extremely large gap.

Looking at the objective, the level of 340-345 EUR/MT is one that covers the investment from 2021, referring strictly to the financial effort of the agricultural cycle per hectare of wheat in Romanian farms. In fact, this level was also given by us as a price base before the beginning of the conflict. The difference from 260 EUR/MT before the problems in the Black Sea basin, to 345 EUR/MT today’s price level in the same parity, represents an increase of about 31.5%.

As regards the price levels offered for the new wheat crop, the levels of 310 EUR/MT for wheat with bakery specifications and 300 EUR/MT for feed wheat have been exceeded.

The European Commissioner for Agriculture has announced some measures in the context of the spectrum of supply shortages caused by the problems in the Black Sea basin. These are realistic measures, viewed through the filter of objectivity. These are generated to support farmers:

EUR 500 million from the EU budget, of which Romania receives EUR 25 million, with the obligation to supplement the amount with 200% of the state budget, i.e., a total of EUR 75 million.
The use of areas taken out of production for the cultivation of protein plants.
Continuation of state aid, as in the pandemic.

The European Parliament also voted in favor of the EU action plan on food security in the wake of the war in Ukraine, which we welcome as an extremely beneficial initiative in the current and future context:

Agricultural area will not be reduced by 10%, as required by the Green Deal.
Flexibility for Member States in developing the NSPs (National Strategic Plans), so as to take into account the new reality.
Reanalyzing the objectives of the Green Deal, based on impact studies.
Impact assessments for certain regulations, including the Pesticides Directive.
Flexibility in crops in areas of ecological interest, including the use of plant protection substances.
Simplifying procedures for farmers’ access to renewable energy.
Once again, the extreme demand to reduce the number of farm animals in order to switch to a plant-based diet was rejected.

REGIONALLY

Ukraine

Wheat was totally restricted to exports. The country needs food reserves, and the current context makes the need to keep wheat in the country, in the perspective of a lasting war. Regarding the new wheat crop in Ukraine, the first estimates lead to a maximum of 10 million tons that will be exported. But at the moment, these estimates are based on current premises. As things move forward, new estimates will make their way. Everything is extremely variable and volatile.

In this context, the Minister of Agriculture of Ukraine, Roman Leshchenko, resigned and was replaced by Mykola Solskyi.

With regard to Ukraine, we must be extremely realistic and generate a normal and correct analysis in the light of the information we have, as follows:

Crop estimates will fall by about 55% due to the war in its territory.
The war has turned into one of attrition and our estimates indicate that it will take 7-9 months until it is finally stopped. News reports of Russian troops intending to destroy all Ukrainian ports on the Black Sea and the Sea of Azov in 2-3 weeks.
Once peace comes, we will have at least 3-5 years to rebuild, which will come at a huge cost and human effort.
In this perspective, we will see how absolutely all foreign investment in Ukraine (and we refer to Western capital) will be completely stopped due to uncertainty. Thus, an important agricultural area of the world, an area that annually generates a level of 25 million tons of wheat exports, 33 million tons of corn exports, 7 million tons of exports of crude sunflower oil, disappears from the global radar of origins. The causes are the above: lack of predictability, lack of facilities as they are destroyed, lack of foreign capital to be transferred and time allotted for the reconstruction of the country.

Russia

The Russian Federation is creating a humanitarian corridor, which is a safe lane for ships in the assembly area, located 20 miles southeast of the port of Ilyichevsk. The corridor is open daily from 08:00 until 19:00. (Moscow time), starting March 25, 2022. The length of the humanitarian corridor is 80 nautical miles southwest, and the width of the strip is 3 miles.

We remind you that since the beginning of Russia’s military aggression, at least 5 merchant ships have been damaged, one of which sank. At least two sailors have died, although details are still being confirmed. Two or three ships were captured at sea and escorted to Crimean ports.

“On March 25, at 10 o’clock in the morning, no ship in Ukrainian ports took advantage of Russia’s provocative invitation,” added A. Klymenko, editor-in-chief of the Black Sea News.

Russia has built its wheat export network. We see export commitments through jointly owned companies to Egypt. We note the huge flow of goods that will move to China, we see the trade on the Caspian Sea to Iran, as well as the supply that they will make to Syria.

With Kazakhstan and Belarus under its control, Russia will have enormous control over wheat flows and will generate a supply chain to the Middle East, China and Afghanistan through the corridors it will create with China.

In addition, we estimate the creation of a power pole that will be positioned in the context of the Middle East, Southeast Asia (India, Pakistan, Bangladesh, Afghanistan,) composed of Russia and China. They will effectively control this whole area and potentially generate sales to North Africa as well, as the European Union, including Romania, will not have enough production to cover demand.

As for the current wheat price trend, the demand factor remains unchanged, but it will not be higher. Destinations are looking for other sources of supply and are carefully balancing their own reserves, waiting for a lower price level of the new crop. Thus, the demand for the old crop will be in place, but we will no longer witness explosions in terms of prices. April, May and June also separate us from the new crop.

But social problems will not be long in coming to poor countries, especially in Africa and the areas mentioned above, so that a supplement of Russian origin aggregated by Chinese technological support would further fracture the world, as Africa is a huge source of untapped wealth and knowingly kept in poverty. Culture generates progress, and there, underdevelopment is at its peak, starting with the education system, which is essential for any nation.

EURONEXT generates decreases and increases caused by political factors and the games played by the investment funds, which enter and exit, generating these sinusoidal curves. Notice how the crop inverse changes, namely MLK22 MAY22 vs. MLU22 SEP22 (33.5 EUR).

EURONEXT MLK22 MAY22 – 381.25 EUR (+4.75 EUR) at the close of March 25, 2022

WHEAT – EURONEXT TREND GRAPHIC – MLK22 MAY22: UP & DOWN on a range from 360 to 380 EUR

TENDERS

In the March 23 tender, TMO Turkey bought 455,000 tons of wheat with delivery on April 1-30. EXW prices ranged from 419.9 USD/MT Bandirma (-0.1 USD/MTn compared to March 2 purchase) to 447.7 USD/MT Izmir (-0.1 USD/MT compared to March 2 purchase) for wheat 12.5% and from 423 USD/MT Bandirma to 427.8 USD/MT Samsun for wheat 13.5%. C&F prices ranged from 429.8 USD/MT Samsun (-15 USD/MT compared to the March 17 purchase) to 445 USD/MT Iskenderun (-4 USD/MT compared to the March 17 purchase) for wheat 12.5 % and 445 USD/MT Iskenderun for wheat 11.5%.

GLOBALLY

Farmers in Canada could face another drought this year. Dry conditions have reduced last year’s Canadian crop, and wheat crops in the United States and China have major problems.

By 2020, before the drought, Canada’s wheat exports accounted for 13% of wheat traded globally, according to the US Department of Agriculture. Much of Canada’s prairies are still dry, with southern Alberta and central Saskatchewan in “extreme drought” since February 28th.

The US is not doing better either, in the context of the lack of water supply in the soil. 41% of American winter wheat is currently in drought-affected areas. The rains are forecast to wet the US, but we still do not believe that they are enough to restore the water supply and revive the American winter wheat. So, as I said in the past, there will be volume issues in the United States.

We go into the stock market and notice the same volatility generated by political factors and exploited by investment funds.

CBOT ZWK22 MAY22 – 1,102 c/bu (+16 c/bu) | Crop inverse ZWU22 SEP22 – 1,069 c/bu (-33 c/bu = -12 USD/MT). Compared to EURONEXT, here we have a much lower level of crop inverse.

WHEAT – CBOT TREND GRAPHIC – ZWK22 MAY22

WHEAT PRICE INDICATIONS IN VARIOUS ORIGINS

ANALYSIS

The global wheat market is reconfiguring around new data.
Russia will generate a magnitude of power in the Middle East and Southeast Asia.
The European Union will have its own food safety on the radar, as well as volumes for destinations in North Africa, the Middle East.
Ukraine will generate a volume of only 10 million tons for export in the 2022 crop. But it is also under the sign of uncertainty due to the war taking place on its territory.
As a coherent explanation, any flow of raw material will eventually find its way. Someone needs it and someone will pay. It is extremely simple, whether we are talking about Russian wheat or oil. Under what conditions? This is another chapter, but the essence remains – someone will buy what someone else will sell.

Feed barley is no longer listed in the CPT Constanța parity. Instead, there are quotations for the new feed barley crop and the primary indications are 280 EUR/MT. The barley has almost disappeared from the radar of the port of Constanța. We also note Jordan, which canceled a barley tender.