- HEADLINES: Chicago lower on “constructive peace talks between Russia/Ukraine; Headline war risk returns; China buying US soybeans.
- Chicago grain futures are sharply lower at midday on the news that Russian and Ukrainian negotiators called Tuesday’s face-to-face discussions “constructive”. Although the media reports that both sides are far apart on a peace accord/cease fire, the markets sold off sharply on the positive undertones that are initially being reported. World financial markets are extremely sensitive to headlines and the news this morning was that both sides saw each other’s demands for a peace accord as constructive.
- However, although the Turkey Peace Talks are being characterised as positive, it is the details that will produce snags. The Russians will not give up the Ukraine real estate captured, and Ukraine will be unwilling to cede Crimea or large areas of the Donbass. Ukraine can state that it will not become a NATO member but remember that Putin in a mid-March Moscow speech stated that the Russian special operations was to cleanse Ukraine of the Neo-Nazi’s and those aligned with the western world. Putin is unlikely to relent this easily.
- And remember that Russia sees the western media as its own propaganda. It was the first peace talks that Russian Foreign Minister Lavrov indicated that considerable progress had been scored before the entire process broke down. Our point is that a peace accord won’t be completed until its signed and the ink is dry. Like the rest of the world, we hope this war ends today, but the odds of that occurring are low in our considered view. And Russia does not want to make it look like economic sanctions pushed them to accept a Ukraine deal that does not include significant landmass of Ukraine, especially Odessa and the Black Sea Coastline. And Ukraine does not want to cede its sovereignty or much territory.
- If the talks break down or stumble, Chicago will have a dramatic reflex rally as the market adds back war premium. As we have been warning, this is about trading headlines. However, if peace talks do not make progress in the next 3-4 weeks, the impact on Ukraine spring corn seeding will be one of devastation. Russia is not relenting on its firing of rockets and other bombardments into Ukraine. The time is now for farmers to plant. However, their employees have left, which along with low levels of fuel and parts produces many questions on 2022 Ukraine seeding potential. There is only one spring planting chance.
- US exporters report that China has been active booking US soybeans in the past few days both in new and old crop positions. The break has enticed China to come back with crush margins in the green. China is rumoured to have bought more than 9-12 cargoes of US and Brazilian soybean cargoes in the past 36 hours. China is asking for bids and new demand is being worked.
- New investment will return into commodities in the second quarter due to worsening inflation. The long commodity/short equity trade should come back in vogue following the USDA March Stocks/Seeding Report with a new Northern Hemisphere growing season ahead. The risk vs. reward has shifted back to the bulls. And the US$ has scored a significant high and is forecast to weaken.
- The midday GFS weather forecast is consistent. Limited rains are forecast for the Western Plains with 2 systems producing 0.5-2.50” for the E Plains and the Midwest. A broad ridge/Trough pattern forms during the 11-15 day period with dryness being maintained across the Plains.
- We have been surprised that Chicago wheat futures did not fall limit with corn futures in the morning trade We hope, but doubt, that Russia/Ukraine will reach a peace accord. Following Thursday’s USDA report, Chicago is likely to see risk on trade return. Managed money has sold 6,000 wheat, 25,000 corn, and 12,400 contracts of soybeans. A new growing season with record fertiliser prices provides more yield questions than answers.