- Today has been all about the Ukraine “crisis” and the involvement of neighbouring Russia who have moved from the border between the two into Ukrainian territory, specifically the Crimean peninsula. International outcry is loud and vociferous in its almost universal condemnation of Russia’s action but they are adamant about their role as “protector” of the oppressed Ukrainian people. Nonetheless, markets have built in a substantial risk premium today, although we have seen that erode in soybeans and soybean meal whilst wheat in Chicago saw gains of over 6% ($0.41/bu) at one stage although at the time of writing wheat’s gains are running at $0.20/bu (3.5%). London wheat surged over £6.00/mt and MATIF gained more than €9.00/mt before closing just off the highs.
- The big question many are asking is, “Have we now seen the lows?” Our view is tempered with a degree of caution and a caveat over what happens in Ukraine over coming weeks. However, we see little logic in either Ukraine or Russia stifling agricultural production, which is a main source of revenue, or restricting imports, which appear to be continuing today. That said there are suggestions that the faint suggestion over questionable export execution is sufficient to justify the rally. On the other hand, the fact that the initial surge in prices was not maintained throughout the session could well point to the fact that initial fears were overdone.
- In the UK (England and Wales) the latest HGCA planting survey confirms a return to more normal winter cropping pattern for the 2014 harvest. 2.976 million ha were planted to winter sown crops (wheat, barley, oats and rapeseed) by 1st December, which was a 14% increase over the previous year. Weather conditions, which were vastly improved over the previous season, were cited as the main reason for the increased acreage. Wheat accounts for 1.815 million ha of the total, 295,000 ha more than was actually harvested in 2013, and this ignores late planted or spring plantings. Interestingly, the winter barley planted area at 369,000 ha is also above the 2013 harvested area by some 41%, and is reported to be the largest area since 2003. The 2014 rapeseed harvested area is estimated at 703,000 ha, a 3% year on year increase.
- In Brazil, Safras (agribusiness consultants) have estimated reductions in the 2013/14 corn and soybean crops on account of dry conditions. Corn was estimated at 71.2 million mt, down from their last estimated 75.6 million mt whilst soybeans were estimated at 86.1 million mt, which is just over 6% down on the last estimated figure.
- Without wishing to labour the point, confusion still exists over the soybean situation as far as China is concerned. There is still no concrete evidence of the long awaited contract cancellations/switched, and that is despite further news of port storage congestion in China to the point that vessel discharge is being disrupted and/or delayed. Further news of collapsing crush margins and declining soybean meal demand from livestock producers who, it is suggested, are already long in a weakening marketplace. All this with significant volumes of soybeans from both north and south America on the water heading for China as we speak! Something, it would seem, has to give before too long. Maybe the expiry of the March contract will provide the necessary trigger.
- Finally tonight, extreme cold in the US is not currently anticipated to be a significant threat to wheat crops thanks to the insulating blanket of snow which preceded the recent reduction in temperatures. However, spring planting could well be delayed by low temperatures as the soil needs to both dry out and warm up to allow field work and seed germination (which requires soil temperatures over 5℃/40℉).