- HEADLINES: Chicago nervously mixed with India banning rice exports; World food security issues rising dramatically; GFS midday weather forecast stays hot/dry for the Central US.
- The big news of the day is not that Russia bombarded Ukraine port facilities for the third consecutive evening, or that Ukraine threatened retaliation against Russian grain vessels in the Black Sea, but that India has decided to ban non-basmati rice exports. This is a “punch in the gut” to SE Asia/North African nations that count on the little white grain for their daily subsistence.
- Food security has come back to the fore of world grain trading in less than a week with the escalation of the Russian war against Ukraine and ending of the Black Sea Grain Corridor pact. Geopolitics has reared its ugly head (again) much like it did in the spring of 2022 following the Russian invasion of Ukraine. World end users of grain/oilseeds are short bought, and the price and origin of the supply is under widespread discussion. Worrying over whether importers can count on the Black Sea as a reliable grain supplier is growing. The curtailment of 10 million mt of Ukraine grain exports is endurable, but this would mean that Russian 2023/24 wheat exports of 45-46 million mt are desperately needed. If a Russian cargo ship is hit via the war, it may cause the cancelation of freight insurance to Russian exporters. The loss of Russian wheat exports shifts the wheat market to a more dynamic bullish price phase. This is where the geopolitics of world grain trade has changed so significantly since Sunday.
- In the case of Black Sea grain fob offers today, they are opaque and difficult to uncover. Azov Sea traffic is limited to just a few hours each day, which has all but closed grain trade from this key Black Sea supplier due to Monday’s strike on the Kirsch Bridge. The Azov accounted for 34% of Russian wheat exports last season. When will the Azov return to export capacity is unknown.
- Back to India, it exported 43% of the world rice trade in the past crop year with non-basmati rice accounting for 80% of the total or just over 17 million mt. This means that world rice importers must get their non-basmati rice from someone else. However, replacing just banned Indian rice exports from Thailand, Vietnam, and others is impossible in the volume halted by India. World food security declined sharply today and if key importers like Africa or SE Asia will now turn to enlarged wheat/vegoil imports due to rice shortages.
- The Indian decision to ban rice exports and the ending of the Black Sea Corridor Pact amid rising war hostilities has left the world in an immediate and sizeable, short food grain position. And making matters worse, Russia has trained world wheat importers/millers to secure spot supplies for the past year as forward Black Sea offers were difficult to find, and the price of global wheat fell each week. This food grain shortage is also fanned by droughts across Europe, Canada, and portions of the Central US.
- China was a sizeable buyer of US sorghum in the weekly export sales report due to switching and new purchases on a combined crop year basis of 650,000 mt. There are rumours that China has been active in securing Brazilian corn in recent days for September-November, and now has also asked for US corn offers. We cannot confirm a US sale, but cash connected sources suggest that some trade has been done. The Brazilian corn is an easy purchase due it its steep discount. A US sale would likely be for Q1 2024.
- The midday GFS weather forecast is consistent with the overnight run with limited Midwest rainfall outside of widely scattered showers for W IN/OH in the next 36 hours. Heat builds early next week as the SW US high pressure ridge amplifies north and east. The mean position of the ridge holds from the Intermountain West and into the Central Plains. The ridge is strong enough to produce record heat for the date across the Western US. There will be several ridge riding systems by late July/early August, but it is impossible to know rain locations or amounts. Crop stress will be acute.
- Seasonal lows in wheat occurred in June and were likely forged in corn last week. Soyoil is pushing to new rally highs as the cash basis bids rise. We are bullish of wheat/soybeans/soyoil and neutral to bullish of corn on breaks. India’s ending of rice exports is a big deal longer term and each headline on the Black Sea will produce sizeable price moves. Be prepared for acute market volatility for the remainder of the summer.