- HEADLINES: Ag markets soar amid escalating Black Sea conflict; Russia aims to annex Russian-controlled portions of E Ukraine.
- Chicago futures are sharply higher at midday as ag markets worldwide add Black Sea weather premium. Ukraine’s recently military successes had markets prepped for some kind of Russian retaliation. Today Russia will facilitate referendums in four Russian-controlled Oblasts in eastern Ukraine to officially annex those territories. The general perception is that conflict in the Black Sea has the potential to ramp up massively, and most important to markets elsewhere is the willingness of vessel owners and insurance companies to sail into the region. Already we hear that sourcing freight in Russia has become more difficult in recent days. Increased military action will serve to slow the movement of grain passing through the Black Sea considerably.
- How the conflict evolves is unknowable but there is little/no room for further Black Sea supply disruptions given record low non-Black Sea exporter wheat stocks/use and very tight combined US and S American corn stocks/use. Reports suggests Putin may speak to address these referendums and general military strategy at some point today.
- We note that prior to today’s news, Russia’s interior wheat market has stabilised at $220/mt. This will keep Russian fob offers in a range of $320-330/mt, which is cheap, but the possible need to ration supplies in Europe means the spread between Russian-EU origin must widen. Dec Paris milling wheat at midday is up €13.5/mt ($0.35/bu). EU corn is again testing $8.40/bu.
- There is also confusion surrounding the Argentine farmer’s ability to capitalise on the special 200:1 Peso-USD exchange rate. Argentina’s Central banks moved to restrict access to this rate, but we believe that soybeans sold by individuals will not be included in this restriction. And recall some 50 cargoes of Argentine beans have been sold into the world market since early September, and so already this has disrupted autumn export demand in the US.
- The bigger issue in Argentina is whether fading La Niña in late 2022 allows for a normal pattern of rainfall in Dec-Feb. The S American forecast at midday is favourably wet in Brazil but remains arid in Argentina into Oct 5-6. Subsoil moisture is completely absent in Cordoba and western Buenos Aires.
- Macro financial markets have turned lower following flat overnight trade. The Dow is down 330 points as this month’s Fed meeting commences. Spot WTI crude oil is down $1.80 at $84/barrel. The US$ has shrugged off recent weakness and at midday is testing last week’s high.
- The Central US GFS weather forecast remains consistent into Sep 30, with the season’s first tropical storm/hurricane forecast to impact the eastern Gulf/East Coast during the opening days of October. Overnight low temperatures drop into the mid/upper 30s across ND/MN Thurs-Sat, but otherwise near zero rain and abnormal warmth is offered to the entirety of the US over the next 10 days.
- The pattern thereafter hinges upon the tropics. The midday GFS forecast maintains that a tropical storm produces soaking rainfall across FL and the Southeast Oct 1-3, but if realised this will work to sustain warmth/dryness elsewhere.
- Volatility continues! Our strategy of rewarding strong supply-driven rallies is unchanged. War in Ukraine is unlikely to materially impact global soybean supply and demand, while the US corn market must contend with Brazil’s surge in market share and normal rainfall across a majority of Brazil’s first-crop corn belt.