Good morning Farmer Family and good start to the week.
We had had a very difficult week past week, also from the point of view of the markets.
However, first of all, our thoughts go out to the Ukrainian civilian population, which is suffering a lot at the moment.
We hope that this conflict will end immediately and that peace can soon be re-established.
Well, while we were evaluating tightening world stocks of grains and oilseeds, Russian forces invaded Ukraine late last Wednesday night and shot the commodity markets higher, as that could impact availability of up to 20% of world corn trade and 30% of wheat trade.
Thus, in the wee hours of last Thursday morning, markets were pushed up, with the result of new highs in corn, soybeans, wheat, crude oil and some others prices.
However, after market had been building in risk premium for weeks, we have seen a big sell-off last Friday.
Indeed, the corn market was 5% to 5.1% weaker on the last trade day of the week.
Friday’s session also dropped soybean prices by 3.8% to 4.3%.
Soymeal futures dropped 3.57% on the day.
Soy oil prices were also triple digits weaker after dropping 4% to 4.51% last Friday.
The wheat markets sank by their expanded limits ahead of the weekend with CBOT SRW was 83 cents (-8.96%!) weaker in the March.
May and July KC wheat futures also closed lock limit down following their limit gains last Thursday.
March KC went home 7.92% down.
Spring wheat futures ended the day with 7.55% cent losses.
But, what’s happened really?
Only time will tell, because this morning we are witnessing a completely opposite situation, with crude oil jumped again, stocks slipped, rouble crashed to record low, corn, soybean and wheat that are rebounding.
Markets are in turmoil and the volatility is unprecedented.
It is hard to rationalize price movements, let alone predict how this conflict develops.
With the threat of nuclear attacks President Zelensky has agreed to talks with Russia on this morning on the Ukrainian-Belarusian border.
Friday seems like a lifetime ago, but the selling was generated from the idea that food and energy not would part of the sanctions and, assuming that Russia was only focused on Ukraine.
Hard to believe this to be the case, but Russia drives the wheat market and China drives the soybean market, and it’s fair to say the west has little idea how to approach either of them.
The most sobering headlines today are focused on Putin’s directive to raise his nuclear deterrent forces status to “Special combat readiness”.
This leads us to no longer be able to display in real time quotations, as prices change by several percent in the space of a few minutes and consequentially, values displayed must be taken with the utmost caution.
Also, the Chicago Stock Exchange once again increases its authorized intraday fluctuation bands to 1.50 USD/bushel for this Monday for wheat.
Thus, let’s move on to our “Last Week Market Comment”, not so much with the intent of understanding where the markets will go this week, but rather to gain awareness of the current state of affairs.
Past week was a crazy week for US farm markets.
Despite a 61 cent range for March on the week, corn prices closed just 0.8% above the prior week.
On the last week, soybeans slipped 0.71% to close back below $16.
However past week the March contract has had a $1.79 ½ cent range.
Soybean meal pulled out only 0.09% gain past week.
Soy oil, meantime, was up 1.75% vs. prior week.
The wheat complex had an even crazier week, as after posting limit up gains in some winter wheat contracts last Thursday, on Friday saw expanded limit down losses.
Still, winter wheat contracts were sharply higher on the week, as CBOT and KC contracts posted gains, up 5.77% and 6.17% respectively.
MPLS, meantime, was down just 0.88% on the week.
In energy market, oil prices slipped last Friday after sharp rises early in the session.
Past Thursday, Russia’s invasion of Ukraine boosted prices above $100 a barrel for the first time since 2014, with Brent touching $105, before paring gains by the close of trade.
Thus, the April Brent crude futures contract last Friday fell $1.15, or 1.2%, to settle at $97.93 a barrel, after climbing as high as $101.99.
The more active May contract shed $1.30, or 1.4%, to $94.12.
U.S. West Texas Intermediate (WTI) crude fell $1.22, or 1.3%, to settle at $91.59 a barrel, after hitting a session high of $95.64.
For the week, Brent rose about 4.7%, while WTI rose about 0.6%.
In this context, money managers cut their net long U.S. crude futures and options positions in the week to Feb. 22 by 21,204 contracts to 274,132, the U.S. Commodity Futures Trading Commission (CFTC) said on Friday.
Meantime, oil prices jumped on this morning on escalating sanctions against Russia over its invasion of Ukraine, which in turn led President Vladimir Putin to put his country’s nuclear deterrent on high alert.
Thus, Brent jumped back above $100 a barrel, initially surging more than $7, as the nuclear alert and bank payment constraints heightened fears that oil shipments from the world’s second-largest producer could be disrupted. Russia accounts for about 10% of global oil supply.
At 06:43 GMT Brent crude futures were up $4.69, or 4.8%, at $102.62, after hitting a high of $105.07 a barrel in early trade.
The April Brent contract expires on Monday.
The May contract was up $5.28 at $99.40.
U.S. West Texas Intermediate (WTI) crude futures were up $5.34, or 5.8%, at $96.93 a barrel, after hitting a high of $99.10 early in the day.
However, gains were capped as it was still unclear exactly which banks were going to be affected by the SWIFT sanctions and whether energy payments would be exempt.
Also, the market steadied on hopes for talks between Russia and Ukraine at a venue on the Belarusian border on Monday, the first negotiations since Russia invaded its neighbour last week.
OPEC+ oil producers, meets on Wednesday to make a decision if increase production.
In the freight market, the Baltic Exchange’s dry bulk sea freight index extended losses on Friday, weighed down by lower rates for capesize and panamax vessels as markets assessed the impact of the Ukraine crisis.
The overall index, which factors in rates for capesize, panamax and supramax vessels, indeed, slipped 111 points to 2,076, but gained 5.7% for the week.
The capesize index fell 309 points, or 15.5%, to 1,691.
However for the week the index rose 16 points or 0.96%.
Average daily earnings for capesizes, which transport 150,000-tonne cargoes such as iron ore and coal, decreased by $2,560 to $14,026.
The panamax index eased 31 points, or 1.15%, to 2,658 on Friday, but posted for the week 283 points gains or by 1.91%.
Average daily earnings for panamaxes, which ferry 60,000-70,000 tonne coal or grain cargoes, fell $282 to $23,922.
The supramax index gained 2 points to 2,417 on Friday, and went home with 92 points gains or by 3.96% for the week.
On week 8, freight rates did not change in the Azov-Black Sea region, Sea Lines shipbrokers report.
Currently, navigation in the Sea of Azov is suspended.
Prior to this, the rate for a 3K wheat parcel from Azov to Marmara Sea ports was $33 per ton.
According to Sea Lines, on week 8, freight rates for wheat parcels from Azov made $31 to the Black Sea, $33 to Marmara, $51 to Mersin and $54 t.
Freight rates from Rostov AB (after bridge) are $1 above, from Rostov BB (before bridge) the same, from Yeisk and Taganrog $1 below, and from Temryuk $3 below those from the port of Azov.
In the Caspian, freight rates demonstrated a downward trend.
On week 8, freight rates for shipping corn by 3,000 dwt bulkers to Iran make $26 from Aktau, $31 from Makhachkala, and $39 from Astrakhan.
In equities markets, U.S. stock indexes on Friday rallied moderately.
Stocks found support on a report from Interfax that said Russian President Putin is ready to authorize talks with Ukraine on a possible neutral status for the country.
The announcement came as the Russian military is closing in on the Ukrainian capital, Kyiv.
Stocks also garnered support by mostly better-than-expected U.S. economic data.
Particularly, Jan personal spending rose +2.1% m/m, stronger than expectations of +1.6% m/m and the biggest increase in 10 months.
Also, Jan personal income was unchanged m/m, stronger than expectations of -0.3% m/m.
In addition, Jan capital goods orders nondefense ex-aircraft & parts, a proxy for capital spending, rose +0.9% m/m, stronger than expectations of +0.3% m/m and the largest increase in 4 months.
Finally, the University of Michigan U.S. Feb consumer sentiment was revised upward by +1.1 to 62.8, stronger than expectations of no change at 61.7.
On the negative side, Jan pending home sales unexpectedly fell -5.7% m/m, weaker than expectations of +0.2% m/m and the largest decline in 11 months.
Meantime, the Fed released its semiannual report to Congress, and said “it will soon be appropriate to raise the target range for the federal funds rate,” citing inflation well above the 2% target and a “strong” labor market.
Thus, the MSCI World Index closed up 2.43%; for the week it was down 0.7%.
The Dow Jones Industrial Average rose 834.92 points, or 2.51%, to 34,058.75, after closmewhat in after-hours trading with the index last, up around 15%.
The dollar index on Friday fell -0.499 (-0.51%) to close at 96.619.
However for the week, the index gained 0.597 points or 0.62%.
Meantime, markets in Asia appeared to take the latest developments more calmly, on this morning.
Indeed, Japan’s Nikkei 225 index recovered from earlier losses to edge 0.19% higher at 26.526,82.
The Hang Seng in Hong Kong lost 0.33% to 22.692,00.
The Shanghai Composite index was 0.32% higher at 3.462,31.
The Kospi in Seoul climbed 0.84% to 2.699,18, while in Sydney the S&P/ASX 200 gained 0.73% to 7,049.10.
Although Asia is unlikely to suffer direct damage from the war in Ukraine, higher energy prices are an unwelcome burden for oil-importing nations like Japan, especially while they are still struggling to recover from the pandemic.
On the weather side, dry weather in both the Plains states and PNW are increasingly a concern as winter transitions into spring.
Weather in wheat growing areas was dry past week with only a small pocket of northwestern Texas and southeastern Oklahoma receiving rain.
Soils in the rest of those states remain extremely dry.
Soil moisture also degraded in parts of Kansas and southern Nebraska.
Snowfall in south-central and western Montana improved conditions there.
In the PNW, precipitation was 25 percent below the average in some areas for the time of year.
Dry conditions along the Snake River in Idaho have degraded conditions there to severe drought.
Meantime, the National Agriculture Statistics Service (NASS) released state-based Field Crops Report past week.
In Kansas, the report rated winter wheat conditions as 26% good to excellent, 64% fair to poor, and 10% very poor.
The report noted that as of Feb. 20, topsoil moisture in the state was 45% very short, 34% short, and 20% adequate.
In Oklahoma 9% of winter wheat was reported in good to excellent condition while 54% was in fair to poor condition and 37% rated very poor.
Almost the entire state of Oklahoma, 98%, was abnormally dry while 88% of the state was rated in moderate to exceptional drought.
In Nebraska winter wheat conditions were 36% good to excellent and 46% fair.
In Texas, conditions were rated 52% very poor due to dry weather.
Also, USDA held their annual Agricultural Outlook Forum past week.
For 2022, their early acreage estimates include:
Corn: 92 million acres;
Soybean: 88 million acres;
Wheat: 48 million acres.
As we know, these are not survey-based estimates—those will come March 31.
These are based on economic models historically used by USDA, likely as of prices a couple months ago.
However it’s interesting that there isn’t much of a change from last year.
Meantime, very little rain or snow is expected in the Midwest or Plains until Tuesday, although the Mid-South will see some moderate moisture during this time, per the latest 72-hour cumulative precipitation map from NOAA.
The agency’s 8-to-14-day outlook predicts seasonally cool weather creeping back into the Northern Plains between March 4 and March 10, with widespread wetter-than-normal conditions likely for the entire central U.S..
On the demand side, weekly EIA data last week tallied ethanol production up another 15,000 barrels per day to 1.024 million.
That increase in output assisted in raising stocks by 24,000 barrels to 25.507 million.
The delayed Export Sales report on Friday showed 1.04 MMT of old crop corn was sold for export.
That was a 3-week high led by sales to Japan.
Corn exports from the week were seen at a MY high – and the most since May last year, at 1.886 MMT.
That left the MYTD export program at 24.22 MMT.
New crop forward sales were 117k MT, pushing the book to 1.683 MMT – up 37% from forward sales at the same point last season.
As for soybean, the report showed 1.232 MMT of soybeans were booked during the week that ended 2/17.
That was above the top end of the expected range with 239k MT previously announced.
For new crop sales, USDA announced 866,500 MT were sold – which was just above the expected range and included 311k MT of previously announced business.
Shipments were seen at 1.26 MMT for the week that ended 2/17.
China was the top destination for the week with 393k MT.
As for soymeal, USDA’s FAS reported soymeal bookings were 231.9k MT during the week that ended 2/17.
That was in-line with estimates.
For soybean oil, weekly export sales were 35.47k MT.
That was a 9-week high and at the top end of pre-report estimates.
As for wheat, data showed 516,926 MT of wheat was booked during the week that ended 2/17.
That was above the range of expectations and was a 4-week high.
Mexico was the week’s top buyer.
For new crop business, USDA reported 169,218 MT were sold.
That was a MY high for forward sales and left the forward book at 547.6k MT.
That is still 35% below last year’s pace.
Accumulated wheat exports reached 1.78 MMT as of 2/17.
That still 20% below last year.
Meantime, last Friday USDA flashed some large private export sales, as China booked 334k MT of new crop and unknown destinations booked 285k MT (159k old and 126k MT new crop).
As for the funds that manage money movements, the CFTC data released after the close reflected a 354,436 contract net long spec fund position as of the 2/22 settle.
That came as 25,286 newly bought contracts met 3,636 fewer shorts compared to last week.
On the commercial side, CFTC showed a 61,517 contract lighter OI wk/wk.
Mainly via long liquidation that extended the commercial net short by 35.5k contracts to the most since May at 702,628.
As for soybean, the report showed soybean spec traders were net buyers of beans through the week that ended 2/22.
That left the group 4,962 contracts more net long to 180,334 contracts – a 60 week high.
Commercial soybean traders reduced OI by 38,400 contracts – mostly via long liquidation.
That extended the commercial net short by 8,332 contracts to 315,154 contracts – the most since December of 2020.
For the products, data showed a 90,417 contract net long for meal spec traders.
That was 1,247 contracts stronger wk/wk and the group’s strongest net long since June of 2018.
For soy oil, the funds were net buyers through the week that ended 2/22 pushing their net long by 8,819 contracts to 79,200.
As for wheat, the report showed managed money firms were still 18,053 contracts net short in SRW futures and options as of 2/22.
That was a 16,605 contract weaker net short.
In the Kansas City wheat, managed money was shown 40,780 contracts net long in wheat futures and options.
That was a 4,730 contract increase form the week prior.
Spring wheat specs were 1,715 contracts more net long wk/wk at the settle on 2/22, with a 6,983 contract net long position.
In this context, corn basis bids were steady to weak after tilting 4 to 6 cents lower across three Midwestern locations last Friday.
Soybean basis bids were steady to mixed across the central U.S., falling as much as 5 cents lower at two Midwestern processors while trending 4 to 5 cents higher at two other locations.
As for wheat, basis past week was down for all wheat classes in both the Gulf and Pacific Northwest (PNW).
Wheat traders described events past week as uncertain and volatile.
High futures prices and low export demand has slowed purchasing by grain elevators.
The funds were net sellers on Friday for 45,000 lots of corn, 30,000 lots of soybeans and 25,000 lots of wheat.
From South America, Brazil’s Safras & Mercado has lowered its 2022 soybean export estimates by 5.8% from its prior forecast, which has dropped to 80.5 MMT.
Soy crush estimates held steady, at 47.49 MMT.
Meantime, Abiove predicts 2022 Brazilian soy oil exports will top 1.7 million metric tons – a record, if realized.
Brazil’s soyoil exports indeed, could benefit this year as India looks for alternative sources for vegetable oils amid struggles with its typical sources in Ukraine, Russia and Indonesia.
However, there’s growing concern that Brazilian farmers, who lean on Russia as their biggest supplier of NPK, could face a supply pinch and suffer soaring fertility costs.
Thus, some groups have already begun exploring alternative supply sources.
Despite higher wheat production in 2021/22, export caps may prevent farmers in Argentina from taking advantage of higher wheat prices said Gustavo Idigoras, head of the CIARA-CEC, a grain processer and exporter professional organization.
Idigoras said farmers had committed 15.5 MMT to export of the 22.1 MMT harvested and another 6 MMT is needed for domestic use.
Meantime, the Rosario Exchange said that a higher than usual number of farmers are harvesting corn crops early in Argentina’s key agricultural zone and “yields obtained up to now are not at all promising.”
The exchange previously sharply adjusted its forecast for corn production due to lack of rain, to 48 million tonnes from its initial 56 million tonne forecast.
Argentina’s corn crop harvest was 3.2% finished through 2/24 according to BAGE.
On the other hand, Argentina’s 2021/22 soybean harvest in the country’s important core farming region is set to fall to its lowest level in 14 years, the Rosario grains exchange said in a report on Friday.
The Rosario exchange indeed, cut sharply its estimate for nationwide soy production to 40.5 million tonnes, from an initial 45 million tonnes.
The exchange said that in the important core farming zone the harvest of the oilseed would be 12.4 million tonnes, due to the impact of the dry weather, which it said was the lowest in the last 14 years.
In that core region where 4.45 million hectares were planted with soy, the exchange said that there are 2 million hectares in regular condition and 670,000 in a bad condition, of which 185,000 are already considered lost.
“That amounts to around 30% of expected production lost,” it said, citing its cut to 12.4 tonnes for the soy harvest forecast from the 17.7 million tonnes it estimated in October.
In Europe, profit-taking pushed wheat and rapeseeds prices sharply lower, even if the market remained under severe tension.
Corn prices, in contrast, rose sharply for close deliveries, with strong demand noted in particular from Spain.
Meantime, French farm office FranceAgriMer estimates that 93% of the country’s soft wheat crop is rated in good-to-excellent conditions through February 21, dropping two points below the prior week’s ratings but still above year-ago ratings of 87%.
As for durum, estimates that 89% of the country’s durum wheat crop is rated in good-to-excellent conditions, dropping one points below the prior week’s ratings but still above year-ago ratings of 88%.
As for winter barley the rating is for 93% in good-to-excellent conditions vs 94% the prior week and 88% a year ago.
Spring barley sowing meantime, is now only 28% vs 27% the prior week, but sharply above 18% a year ago.
Meantime, Strategie Grains in its monthly European oilseed report, trimmed its forecast for 2021/22 EU sunflower seed imports partly to factor in disruption to supplies from Ukraine.
About this, French agricultural group InVivo has suspended its grain activities in Ukraine due to the conflict with Russia, sending home 500 local staff, Chief Executive Thierry Blandinieres said on Friday.
InVivo’s malt activities in Russia were operating normally, but the group was waiting to see the scope of Western sanctions against Moscow,
On this wake, in its report released to clients on Friday, Strategie Grains said it had not yet assumed any curb on oilseed supplies from Russia.
For EU production, the consultancy kept its forecast of this year’s rapeseed crop unchanged at 18.2 million tonnes, up 7.4% on last year.
Meantime, the war in Ukraine, and heavy sanctions Western powers have taken against Russia, will have long-lasting and serious consequences for the French farming sector, French President Emmanuel Macron said on Saturday.
“We are building a resilience plan,” Macron said, adding measures would be taken to protect farmers from cost pressures and compensate lost revenues.
From North Africa, Algeria, said on Saturday that the crisis in Ukraine will not impact its imports.
Algeria does not rely on one supplier but several as its market is open for competition, the source, from the Office Algerien Inter professionnel des Cereales (OAIC), said.
Egipt’s state grains buyer GASC is expecting 180,000 tonnes of Ukrainian wheat between Feb. 15 and March 3.
It is expecting another 180,000 tonnes of Ukrainian wheat in March.
Traders have warned of the risk of force majeure that would cancel the contracts.
According to traders, at least one vessel carrying wheat purchased by GASC has been stuck at a Ukrainian port since Thursday with no indication on when crew would be allowed to continue loading.
Suppliers have also asked some traders and agents in Egypt if they would be able to switch banks to one other than Russia’s now-sanctioned Sberbank.
Consequentially, Egypt’s prime minister and central bank governor on Thursday discussed the availability of funds to cover imports of strategic commodities.
The country’s wheat reserves stand at 4.5 months, a supply ministry official told Reuters on Friday.
From the Black Sea basin, shipments from Ukrainian ports are suspended and those from Russia largely disrupted.
Shipments from Romania continue, but in a context of uncertainty given the risks associated with navigation on the Black Sea.
The disconnection of Russia from SWIFT for many banks, means that Russia would become the third country after Iran and North Korea to be cut off from this system.
Russia is one of the most active participants on SWIFT.
For Russia all processes will be much longer and more expensive.
The interaction of Russian companies with counterparties will not completely stop, but payments will take much longer.
Meantime, removing Russia’s central bank from the SWIFT payment system could have meaningful and undesired ramifications on the western banks liquidity profile.
By banning the Russian central bank and the transfer agents for Eurobonds, Russia will essentially default on all foreign debt immediately.
Smaller Russian banks are scrambling to convert their Ruble position to USD at a rate that represents a 50pc devaluation of the Russia currency.
From the Middle Kingdom, China’s soymeal prices rallied to a record high last Thursday even as the government plans to release soybeans from reserves amid worries over tight supplies in the market.
China’s soymeal futures prices DSMcv1 rose 3.6% to hit 4,006 yuan ($634.10) per tonne, up 10% since the Lunar New Year holiday.
China said this week it would release some soybeans from state reserves to boost supplies but did not give details of volumes.
Soymeal cash prices in Rizhao in Shandong province, a main processing hub in eastern China, rallied to 4,400 yuan per tonne, up 250 yuan just past week, and the highest in almost nine years.
($1 = 6.3176 Chinese yuan renminbi).
Meantime, China’s agriculture ministry said on Monday that it will facilitate the commercialisation of genetically modified soybeans, corn and cotton crops.
China will improve management of GM varieties of the crops, the Ministry of Agriculture and Rural Affairs also said in its 2022 work plan of regulation on GM crops.
From Australia, weather continues to play havoc along the east coast as we have seen substantial amount of rain through Brisbane region in which will have potential to disrupt the supply chain domestically and movements for export program.
Thousands of people have been ordered to leave their homes after heavy rains smashed Australia’s east coast, submerging towns and stranding residents on rooftops, with authorities warning of further life-threatening floods.
The death toll rose to eight on this morning after a man was swept away trying to cross a flooded road, emergency services said.
Several regions have seen rainfall records for February broken after a relentless downpour, with some places getting more than a month’s rains in one day.
Meantime, Friday’s markets continued to firm slightly but only in the zones or delivery windows that the buyers need it.
Liquidity was high, with plenty of wheat and canola selling.
Canola markets were the performer for the week, with values being up $50/mt across Victoria and NSW port zone.
On the international trade scene, Egypt’s state grains buyer issued a new global tender for wheat on Saturday for April shipment.
Egypt, cancelled a previous international purchasing tender on Thursday because of low turnout from major exporters.
The General Authority for Supply Commodities (GASC) set the deadline for this morning Feb. 28, for offers for the April 13-26 shipment with payment at sight.
The tender is for an unspecified amount of wheat.
For the tender for wheat shipping in April, GASC is asking for offers on a cost and freight (C&F) basis or on a free-on-board basis (FOB). The authority typically asks for offers on a FOB basis and holds separate shipping tender alongside the wheat tender.
That’s all.
To all of you I wish you a good day and a good start to the week.
Author: Sandro F. Puglisi
