Evening Report: March 7, 2022

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Focus shifts from South America to Russia/Ukraine for S&D impacts... USDA’s March Supply & Demand Report typically features just minor fine tuning to its old-crop U.S. usage forecasts. But USDA on Wednesday should increase U.S. corn and wheat exports to reflect major uncertainties with Black Sea grain shipments. We also anticipate higher usage forecasts for soybeans to reflect reduced South American soybean and soy product exports. Following are pre-report estimates from a Reuters survey (Bloomberg for cotton).

Russia/Ukraine update... After Russia increased its attacks on several major Ukrainian cities, including Kyiv, the two sides made progress on an evacuation process that would allow civilians from besieged Ukrainian cities starting on Tuesday. However, Ukraine reported all the Russian evacuation routes send citizens to either Russia or Belarus. There was no breakthrough on a political settlement that would end the war. The Russian military threatening Kyiv remained stalled.

Meanwhile, U.S. Secretary of State Antony Blinken sought to reassure Baltic allies, fearing Russian President Vladimir Putin could go beyond his invasion of Ukraine. The Russian and Ukrainian foreign ministers are scheduled to meet again in Turkey on Thursday.

Ukraine calls for Russian export halt to include oil... On Monday, Ukraine President Volodymyr Zelenskyy proposed an international boycott of Russian exports including oil and a halt of all shipments to Russia. On Sunday, U.S. Secretary of State Antony Blinken said the United States and European allies were exploring banning imports of Russian oil, while the White House was coordinating with Congressional committees to move forward with a U.S. ban.

“If the West cuts off most of Russia’s energy exports, it would be a major shock to global markets,” said Bank of America chief economist Ethan Harris. In Monday’s trading, Brent oil, the international benchmark, briefly hit more than $139 a barrel, its highest level since July 2008, when prices hit $147.

JP Morgan predicts oil could hit a record $185 a barrel by the end of 2022 if a disruption to Russian exports lasts that long. However, the bank and most analysts polled by Reuters expect a yearly average price below $100.

Louis Dreyfus suspends Russian operations... Louis Dreyfus Company suspended its Russian operations on Friday, Reuters reported. The grain company had already suspended its Ukrainian operations. The company exports 1.5 MMT to 3 MMT of grain from Russia per year and ships 1 MMT from its Azov Sea grain export terminal.

Ukraine officials address ag exports... On Sunday, Ukraine issued export licenses for wheat, corn, sunflower oil, poultry and eggs, according to Interfax news agency, citing a government resolution. Ukraine suspended rye, oats, millet, buckwheat, salt, sugar, meat and livestock exports.

Meanwhile, state-run Ukrainian Railways is preparing to ship agricultural exports by rail after the country’s Black Sea ports were closed because of the military invasion. The rail operator can deliver 150 grain cars per day to Romania, 45 to Poland, 17 to Hungary and 60 to Slovakia, with up to 70 MT of grain loaded on each car.
 

More countries work to secure grain supplies... More countries are putting in measures to guarantee grain supplies. On Monday, Iraq announced it will allocate $100 million to purchase wheat and create a strategic reserve by importing 3 MMT of the grain, the commerce minister said. Bulgaria will purchase 1.5 MMT of the 3.0 MMT of wheat the country’s farmers have in storage. The government might also halt exports until the purchase program is completed. Hungary announced a grain export ban that took effect on Friday. Top flour exporter Turkey boosted the agriculture ministry’s authority over exports of various goods, allowing it to make “periodical arrangements” if needed. Although a small shipper, Moldova temporarily halted wheat, corn and sugar exports earlier this month. Romania’s Farm Minister Adrian Chesnoiu reported his country has enough grain and food reserves to weather the crisis and is not considering limiting wheat exports at the moment.

 

Spain Ag Minister: EU should consider GM and herbicide trace waivers... The EU should consider temporarily lifting its ban on importing GMO crops to alleviate supply issues due to the Russian invasion of Ukraine, Spain’s Agriculture Minister Luis Planas told Bloomberg News. To increase import options, both Spain and France are pushing for a waiver on agricultural imports with trace amounts of herbicides on them. Spain is also proposing to increase grain production by limiting crop rotation and using fallow land. Long-term, Planas said the EU needs to add flexibility to grain import rules and vegetable protein and fertilizer production targets. 

SovEcon cuts Russian wheat export forecast amid the conflict... Black Sea region consulting firm SovEcon cut its Russian 2021-22 wheat export estimate by 800,000 MT to 33.5 MMT. The revised estimate assumes active military operations in the Black Sea region will reduce the March and April export pace to 1 MMT per month but it will rebound in May and June to slightly above 2 MMT per month.

Navigation is still closed in the Azov Sea. Russian Black Sea terminals are operating, but shipowners are still not ready to send their vessels into the region. However, a few Russian traders recently started to buy wheat in Russian ports after a pause.

Good weather predicted for Argentina’s crops and harvest... Over the weekend, Argentina got heavy, beneficial rains in some of its driest areas in the north, while much of Chaco to northern Corrientes faced increased crop stress amid hot and dry weather, according to World Weather. Northern Argentina is predicted to get significant rain until Thursday. Then from Friday to March 21, the country is forecasted to turn dry again.

German Heinzenknecht, a weather expert at the Applied Climatology Consultancy, said the rains could benefit late-planted corn in the country. Then the dry weather could assist farmers in starting harvest at the end of the month. Argentine farmers have about 5% of their corn harvested. Soybean harvest typically begins at the end of March.

China’s winter wheat worst in history?... China’s Minister of Agriculture and Rural Affairs Tang Renjian reported the country’s winter wheat condition could be the worst in history. Rare heavy rainfall last year delayed planting of about one-third of the usual wheat acreage. A survey of the winter wheat crop taken before the start of winter found that first- and second-grade crop was down by more than 20 percentage points. Farming experts and technicians told the agriculture ministry the crop conditions are the worst in history. USDA forecast China’s wheat production at 136.95 MMT in its February World Agricultural Supply and Demand Estimates (WASDE) Report. That forecast could be updated Wednesday.

Brazil ready to replace Ukrainian, Russian meat exports... The Brazilian meat industry is prepared to cover the gaps from reduced Ukrainian and Russian meat exports to Europe, according to meat lobby ABPA. However, Europe will need to remove the ban it imposed in 2018 on 20 Brazil meatpacking plants after a scandal. According to industry sources, Ukraine exports 430,000 MT of poultry, about 10% of Brazil’s 2021 exports.

China looks to ensure 2022 grain production... At the start of the Chinese parliament meeting over the weekend, Premier Li Keqiang said China would ensure critical agricultural supplies this year, including grains. China would guarantee this year’s grain acreage stays above 117.33 million hectares (289.93 million acres), according to the National Development and Reform Commission's (NDRC) report. China will prevent any attempts to convert cropland for any purpose other than agriculture and specifically grain production, safeguard the farmland area, and increase the pace of revitalizing the seed industry. China will subsidize agricultural insurance premiums to 41.639 billion yuan ($6.59 billion) in subsidies in 2022, up 30.8% from last year.

Higher prices might increase Canada spring wheat acres... Higher wheat prices could encourage Canadian farmers to plant 2% to 3% more spring wheat acres in 2022, switching from oats, pulses and durum wheat, according to Neil Townsend, chief market analyst at FarmLink in Winnipeg, Manitoba. In 2021, Canadian farmers planted 16.5 million acres to spring wheat, according to Statistics Canada. However, large areas of Alberta and Saskatchewan remain in severe drought. Last year’s drought reduced Canada’s wheat production by as much as 40%.