- HEADLINES: Russia to extend the grain export corridor for just 60 days; Weaker US dollar is the result if the US central bank pauses; Algeria receives cheap wheat offers.
- Chicago ag markets are mixed at midday in a risk off day as wheat futures are higher, while soybeans/corn are lower. The “risk off” mentality has fund managers exiting positions amid the volatility/uncertainty in the US financial markets. Regional bank questions abound which has caused dramatic rallies and declines in the US stock market. There are times when grain valuations are not based on supply/demand, but order flow and macro market considerations.
- Amid the rising financial market volatility, funds are exiting short wheat while selling out corn/soy length to cut their market exposure. There are times in investing when cash can be the new asset class. The nearby best interest rates in a decade makes money markets a safe harbour for liquid assets.
- The US March inflation report (CPI) will be released Tuesday morning with the expectation that the monthly rate has cooled. The New York Fed in a survey released today estimated the US inflation rate a year from now at 4.2% with food inflation coming down to 7.3%. Both are uncomfortably high with the FOMC target for inflation at 2.0%. However, amid the economic stress that is facing regional banks, the US Central Bank could hit the pause button which would place an offer over the US dollar for months to come.
- A weaker US dollar would push new investment into hard assets and provide lift to an emerging economy that has struggled with rising costs since the pandemic started 3 years ago. The value and trend of the US$ will be pivotal once confidence is restored in US regional banks.
- Chicago brokers estimate that funds have bought 3,900 contracts of wheat, while selling 5,100 contracts of soybeans and 6,900 contracts of corn. In products, funds have sold 3,500 contracts of meal and 2,100 contracts of oil.
- Russia is willing to extend the Black Sea Grain Export Pact by 60 days, not 120 days, to provide time for the rest of the world to come up with a proposal to help its exports which are being hobbled by economic sanctions. Russia wants tangible progress to be shown on the normalisation of its agriculture exports. Russia wants the progress to be shown “not in words but in deeds”. This means that the current pact will be extended until May 18, with considerable uncertainty thereafter regarding its continuance. We doubt that neither the US nor EU will be willing to ease or drop banking/freight/insurance sanctions as Russia ramps up the war effort. A May renewal is highly uncertain, and the world grain market will closely follow if the US/EU show any willingness to amend existing economic sanctions.
- US weekly export inspections for the week ending March 9 were 39.3 million bu of corn, 22.7 million bu of soybeans, and 9.15 million bu of wheat. For their respective crop years to date, US corn exports are down 378 million bu or 37%. US soybean export inspections are up 39 million bu or 25%, while US wheat exports down 12 million bu or 2%. US corn exports are now in in seasonal increase.
- Algeria wheat offers went in cheaply with there being only 1 Russian wheat offer at $310/mt CIF and other European offers ranging from $312-316/mt. Assuming a $34-38/mt freight, this works back to a $275-278/mt fob Russian wheat equivalent in April/May. The cash world wheat market continues to drop as end users sweep up aggressively priced old crop wheat. We continue to argue that end users should see such prices as an attractive and book wheat well into mid-summer.
- The failure of several large US banks has caused worry that the recent dramatic increase in US interest rates will cause other banks to fail or falter at a time of record large consumer debt, are there other financial shoes that could fail? This has investors looking for the safety of money markets. We maintain longer term that any Chicago break will be short lived amid the fall in Argentine/Ukraine grain production. Russia is not expected to renew the corridor export pact without significant changes in late May as the US/EU cannot drop sanctions.