At the beginning of March, the situation in Russia and Ukraine affected international commodity quotations, crude oil futures prices rose sharply, the agricultural market rose one after another, and corn and soybeans rose. The Food and Agriculture Organization of the United Nations said global food prices hit record highs in February. This week, the USDA's upcoming March supply and demand report is still a market concern whether it can adjust the pattern of wheat and corn exports in the international market in light of the war situation.
The situation in Russia and Ukraine affects grain exports, and the pattern of wheat exports may be adjusted
In February, international speculative funds worried that the situation in Russia and Ukraine would affect grain transportation in the Black Sea region, and the agricultural market led the rise in the United States and wheat, and frequently reached new highs. As of the close of the CBOT market on March 7, the Futures Price of the U.S. Wheat May Contract rose to 1,294 cents/pu, up 494 cents/pu, or 61.75%, from 800 cents in mid-February. After the close, CME Group said the U.S. soft red winter wheat and hard red winter wheat contracts will be extended to 130 cents per pu on Tuesday.
Supply in the Black Sea region was disrupted, and demand for Wheat exports from Europe surged. Traders say Romania, Bulgaria, France, Germany, Poland and other EU countries exported large amounts of wheat last week. The EU wheat market is hot and demand is strong, especially for importers in the Middle East/Mediterranean region and North Africa, and this part of the new procurement demand is mainly from previous purchase orders for Russia and Ukraine. For wheat buyers, they also expect tensions in Ukraine to end as soon as possible so that shipments from Ukraine and Russia will return to normal, so buyers are actively buying alternatives to address short-term feed and grain demand constraints.
For the information of Russian wheat exports, the market is also highly concerned. It is reported that the latest sales of Russian wheat have fallen sharply, partly because of the closure of ports and on the other hand, because ships are reluctant to dock in Russian ports. While Novorossiysk, a large port on russia's Black Sea, remains open, importers remain concerned that war uncertainty could hamper the shipment of goods at the port. Based on the above factors, the market generally expects the USDA supply and demand report to be adjusted in March. U.S. analysts expect Russian wheat export sales to fall by 800,000 tonnes to 33.5 million tonnes in 21/22.
Chart: Russian wheat export estimates (in million tonnes)
Source: USDA, Everbright Futures Research Institute
U.S. corn exports are expected to increase, and corn futures prices are boosted
U.S. corn hit its highest level since 2012 this week as russia-Ukraine conflict disrupted grain exports in the Black Sea region, boosting U.S. corn export demand. After the outbreak of war, international buyers turned their procurement demand to the United States, and global importers were also actively looking for alternative supplies, and the market generally expected more procurement demand to shift to the United States. At the same time, traders are also worried that due to the war in Ukraine and russia, Russia is subject to economic sanctions by Western countries, and the spring sowing in these countries will be disrupted. At present, it is the sowing season of new season crops in European and Asian countries, and if the post-war repair is not timely, it is likely to cause the yield of new season crops to be affected.
Russia is the world's largest exporter of fertilizers, with potash accounting for about 20% of the global supply. Recently, due to the impact of the geopolitical situation, the price of potash fertilizer has fluctuated. Considering that Russia and Belarus account for 40% of global potash exports, China, Brazil and India are the main demanders for fertilizers, and the impact of the war on the rising cost of fertilizers cannot be ignored. The results of the Brazilian advisory body survey show that due to the impact of the war, the cost of fertilizers has risen, and the agency has reduced the use of fertilizers in the new year, which will also affect the crop yield in the new year. Brazil's agricultural agency said it was working to cut local fertilizer use by 20 percent in 22/23 as russia and Belarus suffered sanctions and tightened global supply chains. China enters the preparation season in April, and changes in fertilizer costs will also determine the cost of planting in the new year. Statistics show that in 2022, the price of potash contracts in China and India was 590 US dollars / ton, up 343 US dollars year-on-year, hitting a new high in 10 years. Overall, the March supply and demand report also needs to pay attention to the changes in the US corn export sales data affected by the Russian and Ukrainian wars. At the same time, pay attention to whether crop yields in the new year will be affected due to the sharp rise in fertilizer costs.
Chart: U.S. Corn Exports Forecast (In Million Tons)
Rainy weather alleviates drought, can Soybean production in South America resume growth?
In this round of U.S. wheat led the rise, soybeans, corn to follow the rise in the price of various sectors of international agricultural products linked to the rise of the general rise, the international oil, fat, oilseed market bullish expectations again heated up. In the process of geopolitics and the price game between supply and demand fundamentals, how will the supply and demand pattern of the US soybean market be more expensive than that, and we must continue to pay attention to the changes in the UsDA supply and demand report on the Forecast of Soybean Production in South America and the adjustment of U.S. soybean export sales data in March.
Rainy weather eased drought conditions, and soybean production in South America is expected to resume growth. Brazil received widespread rains last week, including in drought-stricken areas of the south. The rio Grande do Sul weather forecast shows scattered showers north of Friday and sporadic to scattered showers from Saturday to Monday. In addition, forecasts indicate wider rainfall this week, including in arid areas in the south, which will improve soil moisture in the second-stubble maize cropland. Weather forecasts show that the chances of showers in the southern regions up to mid-March are improving, which could be a big help to the corn. However, it is worth noting that the mitigation effect of rains on Brazilian soybean production at the end of February is expected to be difficult to reflect in the supply and demand report released in early March, and South American soybean production is expected to remain at a neutral level in the March report. Statistics show that the soybean harvest rate in Brazil is 56% so far, compared with 37% in the same period last year, and the forward sales of soybeans are 50%, compared with 60% in the same period last year. The progress of new bean sales is slow, and the current sales of new beans are 6%, compared with 11% in the same period last year. Ag Rural again cut Brazilian soybean production by nearly 6 million tonnes to 122.8 million tonnes earlier in the week. In addition, the Brazilian analyst agency also lowered Brazilian soybean production before the March report, and the agency expected that soybean production in 21/22 was revised down to 125.08 million tons, compared with the previous estimate of 127.17 million tons.
Chart: USDA Report Forecast for Brazilian Soybean Exports (in million tons)
This article originated from Futures Daily