Grain and the City: Logical Wheat, Hysterical Corn. World Markets Analysis
It took me 37 years to finally get things straight why hurricanes are given female names. From now on I can make it to the second round in "The Cleverest" game show.
I suggest practising in trying to explain what is going on because it is other people who specialize in predictions. Such as those who work on the old gynaecologist's principle determining the sex of an unborn child for money. Or the ones who specialize in shapes of stock exchange charts. Well, perhaps those are the same things.
Before the U.S. even counted the losses from the Derecho storm, Laura was already bringing water to the rice and cotton crops. The Midwest, with its soybean, should not be harmed, though they could use some moisture. Actually, soybean is gaining on the poor results of the Pro Farmer Crop Tour, and also on the Chinese appetites. I had the pleasure to communicate with colleagues. In a discussion, it was established that the market considers the potential effect of the abolition of duties in Brazil as one of the bullish factors. I don't share their optimism regarding the influence degree on the price. But, as they say, why not make some noise.
Here's the situation: Brazil is the number one soybean producer and exporter in the world. It has overtaken the U.S. Well done. But the country is not macroeconomically rich, the currency is falling with occasional kickbacks, and making farmers nervous. They, like any reasonable doing business, contract forward so that things do not get even worse for them. As of today, the future soybean crop has been 46-50% sold (mind that the harvest will be completed by spring!) and, as an unprecedented generosity, a couple of million tons of soybean of the 2021/22 harvest have already been booked. So what is left for processors? We do remember the case with Pology(Pology Oil Extraction Plant was forced to import soybean as the enterprise had low raw material stocks). Bingo! Import it! By the way, they sometimes do so with corn. Given the seasonal differences, there is a dire need from September (I would say August, but the locals still stress on September) to February.
Learn more: Soybean Deficit in Ukraine
I undertook to find out what the appetite was. Well, since we are talking about a fundamental influence on the market, I thought it would be at least a dozen million tons. They said the demand was about 1 MMT. It's like a big empty sideboard: it falls loudly but with minimal damage. I personally consider this news a reason for micro hysteria for a couple of days. The case itself is, of course, amusing, especially on a Brazilian scale. The problems for American soybean were created by Beijing, and it will be dealing with the situation until March. And by March, Brazil will be harvesting, and the Earth itself may be invaded by aliens because the current mess must end up spectacular.
No matter how the USDA and the rest see the corn harvest, in Ukraine, it is burning. The wheat situation was described alike, but so far 26.7 MMT of production have been estimated. At least there will be enough to export, right? And when by December (read as before the publication of state statistics data) it will be clear that more than half of the export potential is sold, and not much wheat left. Can't wait to see this fun. But by that time there will be elections in the USA, we'll see if the dollar will appreciate and follow Germany, and France will follow the Baltic harvest. And not only to Britain or North Africa. Then comes the unprecedented Australian harvest. But, back to corn. In America, though maize is blown away, and in some places, it dried up, and the expected yield is not high but still better from last year's. So, corn will soon pop, thus the bubble will deflate. The recovery of demand for ethanol in the U.S. is sluggish, in contrast to the demand for firearms. While the overseas exchange is green, in Ukraine, farmers drop forwards, exporters are nervous. It is not clear whether they feel bad for selling cheap, or there is nothing in fact to sell. But I suppose it is a bit of both. And yes, China. Although not, on Thursday they failed to sell some part of the state reserve. But still, China. The conditions will be streamlined, the quotas will be increased, the storages will be cleaned, the pigs and the poultry will be fed. It is a five-year plan finished two years earlier.
Wheat is fundamentally explainable and understandable. It is gaining: there is practically no supply from Europe (47% lower YoY). The euro is strong, it has not depreciated much even after the announcement of inflation targeting in the U.S.A. There is not enough of feed grain, Russia is not infinite. Line-ups for September-October are full. It will be fun (no, it won't) to watch it all happen. A wave of tenders strengthened the domestic market's conviction that they have Lady Luck on their side. Just to remind you: taking freight or transshipment or both from the tender price does not equal to the price on CPTs. For example, in Russia, apart from the standard tender costs, there is also an increase in the cost of logistics (the president does not fight with overload in chats, but the authorities do respond to the problem) and the cost of transshipment. Besides, the European banks have realized that they are as good as anyone else and announced that they no longer provide cheap financing. Anyway, traders will be squeezed — they have already agreed on the price, the domestic market is aware of it and applauding. At least wheat is at 220! So, wheat will be driven by real trade, and corn still depends on expectations and hopes. Wheat is logical, corn is hysterical. Now we're talking! That's the dualism!
Wheat will be driven by real trade, and corn still depends on expectations and hopes
Life is not easy, and importers also have their issues. Pakistan, for one, decided to book only 200 kMT of wheat from the declared 1.5 MMT: they say it is expensive and the private sector has procured more or less enough for a little while. Vietnam is struggling to shift the time of delivery of previously purchased volumes of Latin American corn. They expected the demand to come, in vain.
Learn more: Wheat Exporters from Ukraine in 1H 2020
Oh, and the Coast Guard reopened the Port of Houston. Oil loading has been resumed at the terminal. Exxon Mobil (the one that left Dow Jones as a result of Apple's decision to split its stock) in Texas and the Baytown plant are relaunched. Laura was not as devastating. OPEC+ is a mess, FRS is active, so the oil, like I've said, is sticking up around 45. Sometimes the world is changing right in front of me. The Chicago robots are having a tough time. But it's fine: we survived hunger, we will survive abundance. Soon we will have to roll over the calendar again and start wild ash fires.(Mikhail Shufutinsky song lyrics)
