Markets are trying to digest the conflicting news on the future of the Black Sea Grain Initiative. Over the weekend, Russia said it was indefinitely suspending the deal, which led to a bullish gap higher opening in the grains on Sunday night followed by buying Monday. However, by late Monday, Russian President Putin said in a news conference he was not exiting the deal just suspending it to work out key demands.
The grain markets will continue to trade headlines, and longer term, the key will be how much export business the U.S. picks up. Russia’s suspension of the Black Sea export deal was expected by some in the trade. President Putin had made multiple threats because Ukraine grain was not being exported to the North African nation’s that were dependent on it. Plus, Putin’s goal was to hurt Europe by withholding grain and energy.
Kevin Duling, KD Investors, says, “The fact 70% to 80% of the grain was moving toward the EU, you know to Spain and what not, it doesn’t surprise me he wants to start over or shut it down for a while.”
Putin is also looking for a way to move Russia’s bumper wheat crop, even offering some free to impoverished countries.
“They offered up to 500,000, half a million metric tons is kind of what the offer was to offset this closing of the grain deal, but their arguments are they could export 40 million metric tons, maybe as much as 50,” says Jim McCormick, AgMarket.Net.
However, at least 12 vessels were moving out of Ukraine on Monday, and even if the deal comes to an end, it won’t completely shut off Ukraine grain exports.
“Roughly they’re shipping out about 1.2 to 1.3 million metric tons of corn as well as 1 million metric tons of wheat a month from Ukraine to Poland and Romania via rail,” McCormick says.
There’s no certainty the U.S. will pick up sales with Ukraine partially shut down, he adds, because U.S. grain prices aren’t competitive, and exports are down from a year ago.
“The reality is, in the big picture, we may pick up a few more sales due to the lack of grain coming out of Ukraine but what does that do? Does that really change the balance sheet?” McCormick explains.
There was some farmer selling on the rally, but in this volatile market Duling is advising producers to make only small sales: “I’m just doing 5% to 10% on these spikes up. I’m looking at hedge-to-arrive in March and May for all grains. I think there’s opportunities there. These are good levels. I’m shutting the bin door on a good portion of it because I don’t see how this conflict will go peacefully. So, I think we’re going to see some opportunities later on.”
McCormick is advising some sales because even with this bullish news none of the grain markets were able to take out the top side of their recent trading ranges. As we saw this spring, if prices go much higher it will shut off export demand, at least for corn and wheat.
