For Crimea's Sake!
Mar 14, 2014
Hello Pro Farmer Members!
Citizens of Crimea will vote Sunday whether to remain a Ukrainian territory or become an independent sovereign state. It’s widely expected Crimea will vote to break away from Ukraine, effectively joining Russia. If that’s the course Crimea chooses, the U.S. and European Union have said they will increase sanctions against Russia.
Wheat traders took note of the escalating tensions and building uncertainty in the Crimean region, pushing wheat futures to their highest level since last October this week. Ukraine's ag minister says military tensions and a lack of fuel mean much of Crimea's spring planted crops won't be seeded. While Crimea accounts for less than 5% of Ukraine’s annual grain output, traders' concerns are rising. This illustrates that psychological impacts from conflicts like this often outweigh fundamental factors.
But the concern goes beyond just the Crimean peninsula. There is concern geo-political tensions in the region could disrupt Ukraine's grain trade. USDA says Ukraine is the fifth largest global grain trader -- accounting for approximately 16% of global corn trade and around 5% of global wheat trade. That obviously signals the Ukraine unrest means more to the corn market than wheat, but it's the wheat market that has responded the most.
The uncertainty with Ukraine/Russia has already proven supportive for the wheat and corn markets, but it could become a bigger deal next week. Experts see geo-political tensions settling down in around 30 days, though there could be lingering impacts for grain markets if Black Sea grain trade slows. While grain trade is so far unscathed, exporters have reportedly stopped writing new contracts, meaning there will eventually be a slowdown in exports from Ukraine -- and possibly from the broader Black Sea region.
Also of note on the trade front... Chinese importers canceled 10 cargoes (around 600,000 MT) of South American soybean purchases this week and are reportedly looking to cancel or delay shipment on up to 30 more cargoes -- another 1.8 MMT. Slowed demand for meal due to bird flu and poor crush margins have backed up supplies at ports, giving Chinese importers plenty of reason to cancel soybean purchases. But, why is China cancelling cheaper South American soybean purchases and still taking delivery of U.S. soybeans?
Industry sources say it may be tied to China’s rejection of U.S. corn shipments due to the presence of MIR 162 (Syngenta’s Viptera corn). Exporters who incurred losses because of China’s corn rejections aren’t willing to let Chinese buyers (even though they may be different than the ones who were involved in the corn trade) out of soybean contracts. We’re also hearing China isn’t being allowed to bust freight contracts that were already booked. What's the old saying?... what goes around, comes around. If there is a tie to the MIR 162 situation, it's an ironic twist of fate.
That's it for now...
... have a great weekend!
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