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Analysis Grains

Wheat on the rise due to unrest in the Black Sea

May 21, 2024 - Jurphaas Lugtenburg

Wheat took a big step up in the last trading session. In addition to a weather premium, the war premium is also increased. Market players are not reassured that frost damage in grains in Russia is minimal and that the infrastructure remains unscathed in a possible spring offensive in Ukraine. In the US, farmers have caught up with planting corn.

The September contract for wheat on the Matif closed €9.75 higher at €256.50 per ton yesterday. Wheat on the CBot also rose 5.8% to $6.88¾ per bushel. Corn also saw an increase and closed 1.8% higher at $4.60½ per bushel. Soybeans also showed gains, closing 1.6% higher at $12.48 per bushel.

Setbacks in the Black Sea region are the main cause of the wheat rally yesterday according to analysts. Market bureau Ikar estimates that approximately 900,000 hectares of grain have frost damage due to the low temperatures earlier this month. The price of Russian wheat soared last week partly because of this. Ikar set the price at $239 per ton compared to $221 a week earlier. SovEcon expects Russia to export 4.1 million tons of wheat this month. In April, Russia exported 4.6 million tons of wheat.

In addition to frost, also drought
Not only the south of Russia experienced frost. Parts of Ukraine also saw temperatures drop below zero. Ukrainian APK-Inform estimates that the yield of wheat and other grains may be 20% to 30% lower due to frost damage. Besides freezing temperatures, it is also dry in the east of Ukraine, the south of Russia, and the west of Kazakhstan. No significant precipitation is forecasted in the area until the end of the month.

Unrest is not only caused by the weather. It seems that the war in Ukraine is intensifying. The Russian spring offensive is becoming serious according to some experts, making agricultural work difficult in parts of eastern Ukraine. Ukraine also recently carried out a drone attack on the port of Novorossiysk, an important port for Russian grain exports. The war premium in the grain price is increased by these developments in the market.

Full speed planting
Winter wheat in the US has slightly declined, as shown in the new Crop Progress report from the USDA. 49% of the area is rated good or excellent, down from 50% last week. Planting of spring wheat is progressing rapidly. 79% of the planned area is planted, compared to 65% in the five-year average for this week. Barley planting in the US is slightly behind with 78% planted. The five-year average is 74%.

Analysts are focusing on corn. American farmers have caught up. Last week, 49% was planted, and this week it is 70%. This puts farmers back on track with the five-year average of 71%. Last year, 76% was planted. The ideal planting window is around the first half of May. Corn can be planted until June 1 without significant loss in potential yield according to experts. American farmers are ahead of the five-year average in planting soybeans. 52% is planted compared to 49% in the five-year average.

Strikes in Argentina benefit Brazilian soy processors and exporters. Due to reduced availability of soybean oil and meal from Argentina, importers are turning to Brazil. According to Cepea, the price of soybean meal has increased by 3%. Soybean oil has risen even more. Prices received by soybean farmers have increased by about 0.5% on average.

Jurphaas Lugtenburg

Jurphaas Lugtenburg is a market specialist in onions, carrots, and commodities such as wheat, corn, and soybeans at DCA Market Intelligence. He combines his degree in business administration with a passion for farming.
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