Analysis Grains
Drought gaining more ground in the wheat market
After the cold, it is now drought that is gaining more ground in the grain market. In Russia, it was dry but the ministry is still fairly positive about the development of winter grains. In the US, the drought is expanding to the southern prairies, the country's winter wheat area. Concerns about a trade war are also increasing as Trump threatens to impose a 25% import duty on Canada and Mexico on Saturday.
The March contract for wheat on the Matif closed the last trading session €2 higher at €234.50 per ton. Wheat also rose on the Chicago exchange, closing 0.7% higher at $5.66½ per bushel. Corn and soybeans took a step back in the last trading session. Corn closed 1.4% lower at $4.90¼ per bushel. The loss in soybeans was slightly larger at 1.6% to $10.44 per bushel.
The polar wind that brought cold weather to the US has now given way to milder weather. However, the weather in the US continues to be a concern for the wheat market. Primarily due to the winterkill of wheat. Now there are concerns about drought as well. The northern prairie states were already on the dry side, and now that drought is spreading further to the winter wheat states of Kansas and Oklahoma in the US.
Drought, or actually a lack of snow, in parts of Russia is another factor contributing to a firmer sentiment in the wheat market. If it really freezes again in the second half of February, it could cause problems. According to the Russian Ministry of Agriculture, 27.8% of winter wheat is in good condition and 54.1% is in average condition. Russian Deputy Minister of Agriculture Andrei Razin did express some cautionary words despite the generally positive figures. "The situation with winter crops is difficult. In the Caucasus regions, sowing was practically in the dust, and we had to wait a long time for moisture. This did not benefit the winter crops. But so far, we have not had to make major write-offs on the crops. In some provinces, the situation is even improving due to more available moisture," Razin said at the agricultural congress in Moscow.
Russia is facing grain export issues due to the sanctions imposed by the European Union, according to the Russian Central Bank. The EU has imposed sanctions on 79 ships, including four on charges of endangering economic survival or food security. This could include the transport of stolen grain, for example. The Central Bank stated that Europe has added more than fifty ships to the sanctions list. This collectively puts pressure on Russian grain exports.
Trump Trade War
The threat of Trump unleashing a trade war by imposing tariffs is being taken more seriously by the grain trade. Trump said yesterday that he intends to follow through with his threat to impose a 25% tariff on products from Canada and Mexico starting February 1st (tomorrow!). Whether oil from these countries will also be subject to the tariff has not yet been decided by the president, as he told journalists in his Oval Office. Trump also mentioned the plan to increase tariffs on products from China. The tariffs themselves are not a major issue for American agriculture. However, a possible retaliatory response could be. In the short term, analysts are particularly concerned about the relationship with Mexico.
