Rural Voice Market Commentary – August 2022
by: Scott Krakar
It was not surprising that grain prices rose sharply as Russia began its attack on Ukraine near the beginning of the year. At that time there were many questions about how much grain the two countries could export to world markets and a great uncertainty existed as to how much new crop planting would occur in the Ukraine with an ongoing military crisis – with fuel and fertilizer in short supply. At that time also there was a dormant US wheat crop that may not have been there to fill the void if worst case scenarios came true, as production fears existed with dryness through the US plains. In the same manner that it should not have been surprising prices went up when this uncertainty existed, it should not be a surprise also, that as these uncertainties became clear, that prices would fall back again. The world that once feared being short grain is finding adequate supplies available on the world stage.
The long awaited and anticipated co-corridors for ships from the Ukraine was enacted, through the efforts of the UN, Turkey and of course the two combatant nations. Under this plan, Ukraine would guide ships through the mined waters of Odessa (and 2 other ports) through safe channels were they could load grain and then be escorted safely to exit. From leaving the Ukraine ports, they would then travel to a Turkish port for inspection, and then furtherance to nations who purchase the grain. Similarly ships entering the Ukraine would also be inspected, to alleviate Russia’s concern that the ships would bring military supplies to the region. Turkey controls the straits that enter the Black sea and therefore has the ability to sequester ships coming and going from the region. The goal of this project would be to re-establish shipping volumes that were pre-invasion levels. An official spokesperson said of the deal, “The fact that two parties at war – and still very much at war – have been able to negotiate an agreement of this kind.. I think that’s unprecedented.” Upon this news grain prices slid as market players recognized the volumes of grain that may have been able to come upon the market if the deal went as negotiated.
Shortly after the export deal was signed Russia sent a missile strike into the port of Odesa, bring questions as to whether Russia came to the agreement in good faith, and speculations if either side would agree to maintain the agreement with military action almost immediately after the deal was signed. With this uncertainty grain prices pushed higher once more. The Kremlin gave assurances that their target with this strike was purely military infrastructure only – and from there the market waited to see if loaded ships would leave the region after all.
Finally after many months of waiting in port, some vessels that were trapped in Ukraine were finally able to leave the Ukraine, with cargo heading to destinations that were expecting shipments long ago. The first ship to leave Ukraine, was a vessel named the Razoni. This ship loaded with 26,527 mt of corn was destined to Lebanon, finally on route after a 5 month delay. As the ship was destined to arrive at its destination, the ship was refused and rejected from unloading due to the delayed timing of the vessel. The vessel then had to look for alternative unloading as the original buyer refused the cargo in accordance with contract terms. From here many vessels that were stuck in Ukraine got loaded and more and more grain came to market. Upon the conflicts beginning, there were about 70 ships that were stranded in Ukraine, that wanted to be loaded and exit the territory as soon as possible. As this grain came to market world prices began to fall and world buyers had less demand for grain as they started receiving cargos, and were less willing to pay the high prices that the market once demanded. Ukraine is in a position that makes them the world’s low cost seller of grain, with millions of tonnes in port position awaiting shipment to bring in new crop grain from farms that need to move product off the field. With this situation at hand, US and Canadian shipments are simply not price competitive.
This conversation brings us to Ontario, in the midst of our wheat harvest locally. We have sound harvest quality here in the province. This is a great relief to all participants in the market after last year’s challenges with falling number so prevalent. We have much better yields in the province than was generally expected in most areas of the province. In the southern regions, where wheat acres were quite low due to the wet fall, harvest yields surprised many by being about average. Sentiment seemed to be that yields would be poorer than average. In the more Northern and Eastern regions of the province, where planted acres were more in line with average planting, yields have been stellar. This too has been a surprise as the dryness in the region led to thoughts that the yields in this area would also be average.
So here we are in Ontario, a great quality crop, large abundance of exportable supplies, and a world market that has wheat readily available leaving us with little market demand.