Analysis Grains
Signals are not clear in the grain market
Conflicting signals are being given in the grain market. The threat in the Black Sea region remains, but the risk premium is not really increased. The new IGC was bullish in tone, but it was not really embraced by the market. Another very difficult factor to assess is the new president of the US.
The December contract for wheat on the Matif closed yesterday €0.50 higher at €220.25 per ton. Prices took a step back in the last trading session on the CBoT. Wheat closed 0.7% lower at $5.48¾ per bushel. Corn lost 0.8% and is now at $4.26¾ per bushel. Soybeans were the biggest decliner at 1.3%. The January soybean contract closed yesterday at $9.77¾ per bushel.
The sentiment in the wheat market is overall somewhat moderate. The threat of war between Russia and Ukraine remains, but the premium is not significantly increased. The use of intercontinental missiles by Russia was described by Putin as a test for the West, according to various news services. Furthermore, the Russian president hinted at not being impressed by the long-range missiles that Ukraine is now using in the 'special operation,' as the Kremlin continues to call the war.
A noteworthy detail is that today, the BBC reported based on research from the Open Source Centre that Russia has delivered over a million barrels of oil to North Korea since March. Oil serves as payment for the weapons and soldiers that North Korea supplies to Russia to continue the war in Ukraine. Such oil deliveries directly violate the UN sanctions against Pyongyang. North Korea is the only country in the world banned from buying oil on the open market. This trade embargo was imposed to prevent North Korea from further developing nuclear weapons.
Wet season in Europe continues
The International Grains Council (IGC) has reduced the global wheat yield expectation by 2 million tons to 796 million tons for the marketing season 2024/25. The majority of the reduction is attributed to the EU. The 2024 harvest has been lowered to 120.3 million tons from 121.8 million tons a month earlier. Last season, the EU harvested 133.1 million tons. France has the smallest wheat harvest in forty years, and yields in Germany are also significantly lower after the extremely wet season.
The weather is exerting some downward pressure on the grain market. In the US, only 40% of winter wheat is currently in a drought region, down from 62% three weeks ago at the peak. Drought is also not the biggest issue in South America. Weather models predict rain until the first week of December, including for Brazil and Argentina.
Political desires
The geopolitical developments around the Black Sea have been mentioned, but there are also uncertainties in the US. Most attention from the grain trade is focused on the trade relationship between China and the US. It is known that President-elect Trump is not a fan of importing Chinese goods, which could affect, among other things, American exports of agricultural commodities. The future of biofuels under Trump is even more uncertain. During his previous term, Trump paid little attention to international climate agreements, and it is expected that his attitude will not change much in the next four years. What has changed compared to eight years ago is that oil companies and biofuel producers seem to have found common ground. Both the fossil fuel and biofuel industries argue that anything is better than electric vehicles. The question is whether this unity will hold now that someone is coming to the White House who has expressed support for the oil companies.
