Spring watch – where will the weather bubble burst: Grain Market Daily

Black Sea fundamentals play a very large part in global wheat price formation, and ongoing weather and trade stories from the Black Sea this season are no different. We have already seen restrictions on old crop grain exports from the region buoy markets, and this positive sentiment is being supported by ongoing concerns about dry weather.

In the South of Russia, the key region for wheat production, rainfall indices for March and April are very much below normal, with recent rains offering little in terms of relief. Similar is true for weather in Ukraine.

Over the next 15 days, rainfall is expected to hit parts of Russia and Ukraine. However, current forecasts suggest levels will be average or below in key grain producing regions and as such, are unlikely to alleviate the bullish sentiment.

The challenges for new crop production are starting to be seen in some production forecasts. IKAR, the Russia’s Institute for Agricultural Market Studies, reduced its 2020/21 production estimate by 2.3Mt earlier this week to 77.2Mt.

Russian cash prices have seen significant support over the last month. Nearby milling wheat (12.5%, FoB Novorossiysk) has gained $22/t over the month to $230/t yesterday.

While demand is being capped by coronavirus measures in Europe, dryness on the continent (as well as in the UK) is a growing concern.

After the winter we have had, it seems surreal to say that there are now reportedly drought concerns building in some countries, bringing a new sad irony to the phrase “it never rains but it pours”.

Over the next 15 days, rainfall in many key grain-producing parts of Europe is expected to be limited. The fundamental support from a tightening of EU and UK production is less than that of the Black Sea region. Non-EU trade is already likely to be reduced next season, and parts of the EU (inc. UK and France) are already expected to see dramatic reductions in their export campaigns year-on-year.

French crop condition scores from FranceAgriMer declined once again in the week ending 20 April. The proportion of French winter wheat rated “good” or “very good” fell by 3%, while the proportion of spring barley fell by 9%.

Despite the ongoing dryness, above average rainfall is expected in the next 15 days, which will alleviate some concerns.

At present in Brazil, the safrinha maize crop is going into the ground. However, conditions in South America have been less than ideal for both the maize and soyabean crops.

Soil moisture in key maize growing parts of Brazil remains well below average, with recent rains doing little to alleviate the poor conditions. The maize picture is serving more to ease downward pressure on prices rather than acting as a rampantly bullish factor, as it normally might. This is primarily driven by the overwhelming lack of demand for maize from the ethanol sectors in both North and South America.

Nearby Chicago maize futures have seen a small resurgence in the past week, but this is not overly surprising given prices had fallen to their lowest since August 2016.

Dryness is similarly an issue for Northern Argentina. The Beunos Aires Grain Exchange has reduced its forecast for soya production as a result in the past couple of weeks.

As we move through April and into May the pace of plantings in North America will be a key watch point for markets. Although still very early days, plantings of both maize and spring wheat are behind their respective five-year averages.

Cold weather has reportedly been delaying plantings, with spring wheat planting particularly behind schedule in Minnesota, Montana and the Dakotas.