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Analysis Grains

Drought in Black Sea region affects yield potential

July 2, 2024 - Jurphaas Lugtenburg

The rain in Europe is unevenly distributed. Grain growers in Northwest Europe are eagerly awaiting a dry period, but keep getting rain instead. Further to the east, a shower would be more than welcome. According to the weather forecasts, it will remain dry in that region for the next two weeks. This could potentially impact the amount of grain that can be exported from the Black Sea region in the upcoming season.

The September wheat contract on the Matif closed €5.50 higher at €230.25 per ton yesterday. Wheat also saw an increase on the CBoT, rising by 2.8% to $5.69¼ per bushel. Corn showed a slight recovery after a significant drop before the weekend, closing 0.3% higher at $3.98¼ per bushel. Soybeans closed 0.8% higher at $11.59½ per bushel.

In the Netherlands, we have almost forgotten last week's summer weather. Rain has returned to our part of the world. The only advantage is that some parts of Spain and western Poland are also receiving some rain. They could use some moisture. In Eastern Europe, Ukraine, and southern Russia, concerns about persistent warm and dry weather are increasing. Until mid-July, there is hardly any rain in the weather forecasts. Several analysts expect that the lack of moisture will result in lower yields in grains. Winter wheat might not be affected too much as it is ripening, but summer grains and corn are expected to take a significant hit.

Market barely reacts
The weather influence is not reflected in the price of Russian wheat. Ikar lowered the price for Black Sea wheat by $5 to $226 per ton. Despite the lower price, Russian exports took a step back according to SovEcon's data. Russia exported 790,000 tons of grain last week, down from 830,000 tons the previous week. Of the grain exports last week, 680,000 tons were wheat. SovEcon has reduced its export expectation for the 2024/25 season by 1.7 million tons to 46.1 million tons. The cause of this reduction is an expected smaller harvest, as stated by Andrey Sizov, the director of the bureau, in an email to clients. Due to the smaller harvest, grain prices may rise, increasing the likelihood of Russia implementing new export restrictions to control prices in the domestic market.

Progress is everything
In the US, wheat growers have made significant progress in harvesting. According to this week's Crop Progress report, 54% of winter wheat has been harvested. The five-year average for this week is 39%. Some analysts believe that with more than half already harvested, the wheat market has reached a temporary low. They argue that supply around harvest time is slowly drying up. On the other hand, there is a group that expects another surge in wheat for which there is no space in the silos.

The condition of winter wheat has been slightly adjusted downward, with 51% now rated as good or excellent, compared to 52% last week. Spring wheat, on the other hand, is looking better. 72% of the US acreage is rated as good or excellent, up from 71% last week. Corn has declined slightly this week, with 67% of the acreage receiving a good or excellent rating, compared to 69% last week. Soybeans remain unchanged, with 57% receiving a good or excellent rating, the same as last week.

In Brazil, nearly half of the second-crop corn harvest has been completed. AgRural reports that 49% has been harvested. StoneX revised down the yield forecast for corn in Brazil yesterday. The bureau now expects a total corn harvest of 121.18 million tons, down from the previous forecast of 121.75 million tons. For comparison, the USDA projected 122 million tons in the latest Wasde report.

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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