Andrey Sizov
04.07.2022
This is what has happened around the Black Sea during the last week
* Russia lowered the export tax, ie next week’s wheat tax will be “only” 4,600 rub/mt ($84/mt) vs $146/mt. It will get even lower soon, farmers are excited BUT FOB is also collapsing ~ $375, around -10% in two weeks…and it needs to go lower to make RU more wheat competitive
* Russian early July exports are expected to be weak, that’s OK..but if they don’t speed up substantially by early August it is going to be a problem. Our basic scenario is they will – SovEcon upped Russian 22/23 export by 0.3 mmt to 42.6 mmt. The pace of exports during the next few months is likely to be a key variable for the global wheat market
* GASC bought a record-high 815K of wheat…no idea why so much, especially for October where there were no Russian offers and they bought 240K of French wheat. Total French sales were 360K…quite aggressive for the beginning of the season. Probably it was a good deal for sellers, not Egypt
* Huge sell-off in wheat / corn (macros, Ru crop & taxes, funds going short wheat and getting rid of corn(?)) – we are back to February levels. Wheat price dynamics – more or less in line with our expectations. The market asks for a bounce short term, some downside left but this sell-off could be approaching the bottom – we are becoming less bearish
* Good rain in northern Ukraine (good for #corn), Russian Siberia and Volga Valley (good for #wheat), Russian South (not good for wheat at this stage, quality could suffer)
* Starting Ukrainian #barley and #wheat yields substantially below average – 2.4 mt/ha and 1.8 mt/ha but gradually increasing as farmers start to harvest better fields
* Russian #wheat yield is not that impressive 2.7 mt/ha vs 2.4 mt/ha a year ago, mainly Stavropol region (#3 Russian wheat grower)…should improve substantially shortly when the campaign moves to Krasnodar region (#2)
* Ukrainian terminals remain blocked…Turkey continues its “grain corridors” diplomacy (anyone is still following it? not sure) but the basic scenario remains the same – ports will remain shut. Russian troops left strategic Snake Island not far from Odesa. Russia is advancing in Donbas – no end to the war in sight
* Ukraine exported 1.2 mmt of corn in June, marginally above May…prices are falling, getting close to $200/mt Polish border…were almost $50 higher in mid-May. 22/23 grains S&D will be a disaster for the domestic market – huge supply (record high carry-in + no so bad crop) vs limited exports. Total supply ~ 3X domestic consumption
