grain prices

Agriculture – Russia pulls out of the Black Sea Grain deal The Black Sea Grain Initiative expired yesterday with Russia not willing to agree on a further extension of the deal. The news saw CBOT wheat at one stage trade more than 4% higher on the day. However, prices eventually settled down on the day. While the end of the deal is certainly supportive of grain prices – given that Ukraine was expected to make up around 10% of global corn exports and around 5% of global wheat exports – we do not believe it will mean significantly higher prices. Supply growth elsewhere this season means that even if we were to lose all corn exports from Ukraine (19.5mt), global corn ending stocks for 2023/24 would be under 2mt less than 2022/23. For wheat, the impact would be more meaningful if all Ukrainian wheat exports (10.5mt) were lost, as this would leave 2023/24 global ending stocks more than 13mt lower than 2022/23 and at their lowest levels since 2014/15. However, this is a worst-case scenario. In reality, we will not lose all Ukrainian export volumes, given that we will see a pick-up in flows via the Danube and through the EU. Admittedly though this would be a more expensive route, whilst capacity constraints may be an issue.

The Commodities Feed: Supply risks grow Russia’s bombing of port infrastructure along the Danube river in Ukraine has pushed grain prices significantly higher. This escalation risks spilling over into other parts of the commodities complex, particularly energy.   Energy – Oil marches higher Having struggled to break convincingly above US$80/bbl over the last week or so, Brent settled above US$82/bbl yesterday and in doing so broke above the 200-day moving average. The market would have taken comfort from China’s Politburo meeting where the government said it would provide further support to the property sector, stimulate consumption and tackle local government debt. China is key for global oil demand growth this year and the market has been getting increasingly concerned over the weaker-than-expected economic recovery, so any support measures will be helpful in easing some of these concerns. On the supply side, whilst remote for now, risks are growing following Russia’s escalation and bombing of Ukrainian port infrastructure along the Danube River. Whilst this is not a direct threat to energy markets, there are worries that this could spill over into other markets, particularly after Ukraine last week said that any ships heading to Russian Black Sea ports could be treated as potential military targets (in response to a similar statement from Russia). Russia ships almost 500Mbbls/d from the Black Sea port of Novorossiysk, while the CPC terminal in the port exports around 1.2MMbbls/d of Kazakh oil. Therefore, it is not too surprising that the market is starting to become a little nervous over a potential supply disruption, even if it is a remote risk for now.   In addition, stronger refinery margins are likely adding to some optimism over demand, although the strength in refinery margins appears to be more supply-driven than demand-driven at the moment. The strength has been driven predominantly by gasoline and middle distillate cracks, while fuel oil cracks are also holding relatively firm. European gasoline cracks have hit US$30/bbl, the highest levels since July last year. The strength in the gasoline market has been blamed on several factors, including tightness in the octane market, while hot weather in parts of Europe also appears to have led to some refinery disruptions. The initial strength in margins was driven by middle distillates, which would have led to some yield switching (gasoline to gasoil), however the more recent relative strength in gasoline could now see yields switching back (gasoil to gasoline). As a result, this is also offering continued support to middle distillate cracks. In addition, in the US, an unplanned outage at Exxon’s 540Mbbls/d Baton Rouge refinery, the fifth largest refinery in the US, is also providing some strength to margins. European natural gas prices also rallied significantly yesterday with TTF settling 8.5% higher on the day, taking it back above EUR30/MWh. There will be concerns over what further escalation in Ukraine could mean for the small but still important amount of Russian pipeline gas that runs through Ukraine into the EU. Fundamentally though, the European market remains in a very comfortable position with storge almost 84% full. While uncertainty may provide support to prices in the near term, we expect prices to come under pressure over much of the third quarter, given storage will be full well ahead of the next heating season (assuming no significant supply disruptions).  

The Commodities Feed: Oil finds some support Oil prices appear to have found some support after comments from the Saudi energy minister yesterday who suggested demand remains healthy. Meanwhile, grain prices came under pressure with a relatively bearish WASDE release.   Energy - Oil finding some support ICE Brent has managed to claw its way back just above US$80/bbl, whilst prompt timespreads have also bounced back a bit. Comments from the Saudi energy minister yesterday appear to have provided some comfort to the market, with the minister stating that oil demand remains healthy and that the move lower seen in oil prices has been driven by speculators rather than fundamentals. The minister stated that increased exports from the Middle East does not reflect increased output, but rather a seasonal trend as stronger summer demand in the Middle East eases. We believe that the scale of the sell-off in oil is exaggerated given that fundamentals are still tight at least in the short term. However, fundamentals are not as bullish as originally anticipated with Russian oil exports edging higher, whilst refinery margins have also been weakening. Middle distillates remain tight despite the more recent weakness in cracks. Gasoil inventories in the ARA region fell by 47kt last week to 1.72mt, according to data from Insights Global. This leaves inventories at similar levels to those seen at the same stage last year, and around 24% below the 5-year average. The middle distillate market remains vulnerable as we head deeper into the northern hemisphere winter.

Agriculture - Bearish WASDE Grain prices came under pressure yesterday after a fairly bearish WASDE report. In its latest monthly update, the USDA revised up its 2023/24 US corn output estimate by 170m bushels to 15.2bn bushels, due to an upward revision in yields. As a result, 2023/24  ending stock estimates are now seen at 2.16bn bushels, up 45m bushels from last month’s estimate and above market expectations of around 2.14bn bushels. For the global corn balance, 2023/24 ending stock projections were revised up - from 312.4mt to 315mt primarily due to larger supplies and higher beginning stocks. This was above the roughly 312mt the market was expecting. For soybeans, the agency revised up its 2023/24 US soybean production estimates from 4,104m bushels to 4,129m bushels on the back of better yields. Stronger output means that ending stocks were revised by up by 25m bushels to 245m bushels, higher than market expectations of around 225m bushels. Meanwhile, global soybean ending stock estimates were revised down from 115.6mt to 114.5mt, primarily due to lower beginning stocks amid flat demand. This is slightly below what the market was expecting. Finally for wheat, the USDA increased its 2023/24 US ending stocks estimates from 670m bushels to 684m bushels following a drop in domestic use. The market was expecting stocks to remain unchanged from last month’s estimate. As for the global wheat balance, 2023/24 ending stock estimates were increased from 258.1mt to 258.7mt, slightly above expectations of around 257.8mt.