Markets Shrug as Putin Bans U.S. Agricultural Products

11:21AM Aug 07, 2014
Midweek Markets

Russian President Vladmir Putin’s dramatic announcement yesterday that his country would not be buying American grains and other ag products didn’t exactly cause the commodity markets to go crazy.

While global unrest and limits on supply can often drive prices up, as happened earlier this year when Russia entered Ukraine, that doesn’t seem to be the case here. Corn for September delivery, for example, opened today at $3.62/bu., slipping to $3.57 by late morning. Wheat also dipped, opening at $5.68/bu. for September release and soon falling to $563.6. So did soybeans, opening at $10.964/bu. and sliding down to $10.93.

 What’s going on? Russia just doesn’t buy much American grain, according to Kevin McNew, president of Grain Hedge and Geograin. "Russia has been a very infrequent export customer," he writes. "For the current marketing year the U.S. has shipped eight cargos of soybeans and no corn or wheat to the Russian Federation."

Kevin van Trump of Farm Direction also puts Putin’s attempt to punish the U.S.  and other countries for sanctioning Russia in perspective. "What does this mean to U.S. producers? From what I can gather Russia has threatened to completely ban ALL U.S. agricultural products from its market and slap an import ban on all fruit and vegetables from the [European Union].  This will also include all U.S. poultry being exported into Russia," he writes. "About 20 years ago that would have been a huge pinch, considering about 40 percent of our poultry exports went to Russia, which now only accounts for about 7 percent. Overall, the U.S. exported $1.3 billion in food and agricultural products to Russia in 2013, while the E.U. export total came to $15.8 billion."

Chip Flory, editorial director of Pro Farmer and host of Market Rally Radio, also noted the effect on America’s chicken farmers and producers. "The biggest impact should be on the poultry markets," he said on AgriTalk. "About 8 percent of our poultry exports go into Russia. It’s about 1 percent of total red meat and poultry exports that end up in Russia. It’s a bit of a big deal for the poultry industry, and it might have a little bit of a trickledown effect into the corn market and the meal market."

Listen to Flory's comments on AgriTalk below:

As for Van Trump, he’s more concerned about the monster corn crop that everyone keeps predicting. "I remain extremely fearful of the old adage: ‘Big crops tend to keep getting ... BIGGER,’" he writes. "Even though the trade is worried that the USDA might not aggressively raise yields in the upcoming August report (next Tuesday), I'm personally worried that the USDA may continue to raise yield estimates higher and higher each month as they become more certain about production, ultimately ending in what appears to be a NEW record crop perhaps well over 14.2 billion bushels."

What is looking better? Wheat. The grain has "led the oversold recovery in the grain complex due to poor quality wheat in the southern Midwest and in the European Community. Supply of milling-quality wheat is a concern to hedgers in the market," says Allendale’s Paul Georgy. 

Those issues, combined with news of rain and the ongoing situation in Ukraine, have helped move wheat prices upwards for the past week, contrast to corn. "Tensions appear to be escalating," observes Paul Hueber of The Huber Report. "While I do not think it quite the same, this is what accelerated wheat to the spring high previously this year and appears to have shaken us from the doldrums once again."

Van Trump also appreciates the higher prices for wheat, although he has a few caveats. "From a producer’s standpoint, I do … like the fact that wheat is now trading at a $2.00-plus premium to corn…. Those of you who have been wondering what to plant next year, you might want to give some additional thought to planting more acres," Van Trump says. Just don’t go overboard—there’s a lot of wheat in the world. "Simply based on the global supply numbers [for wheat], I have a hard time getting overly excited" about the possibility of price increases," he says.

He’s also skeptical about the current prices for soybeans, which he thinks does not reflect the likely size of the harvest. "The facts are, we will soon be swimming in soybeans and everybody and their brother knows it, but for some strange reason the trade continues to buck the obvious and prefers to avoid the inevitable," Van Trump says.