Evening Report | October 26, 2022
Check our advice monitor on ProFarmer.com for updates to our marketing plan.
Wheat hedgers producers: Enter stop order to exit 2022-crop hedge… We anticipate next Monday’s first winter wheat crop condition rating may be record-low, which could trigger a bullish response in wheat futures. With that in mind, we advise wheat hedgers to enter a standing buy stop at $8.50 in December SRW futures to exit the 15% 2022-crop hedge. We are willing to maintain the hedge below our stop level given poor export demand.
Putin expected to use grain deal as leverage at G20 meeting... Russian President Vladimir Putin is likely to use a possible extension of the deal allowing Ukrainian grain exports from three Black Sea ports as a way to gain leverage at next month’s G20 summit in Indonesia, a European diplomat briefed on the grain talks told Reuters. Russian officials have repeatedly said that there are serious problems with the grain export deal as its Nov. 19 expiration draws closer.
“The grain deal will be the centerpiece of this G20 summit and everyone will be trying to convince Putin to extend it, essentially to allow it to roll over or to extend it for longer,” the European diplomat said. “It is a way for the Russians to hold the cards at the G20 summit but a rollover or a longer-term extension to the grain deal doesn’t cost them anything. Russia will take it to the brink but they will extend because they won’t want to face the international opprobrium of ending the grain deal,” the diplomat said.
UN official: ‘Relatively optimistic’ on extension of Ukraine grain export deal... United Nations aid chief Martin Griffiths said, “We are keen to see that [the Ukrainian grain export deal] renewed promptly, now. It’s important for the market. It’s important for just continuity. And I’m still relatively optimistic that we’re going to get that. We’re working hard,” Griffiths said.
While Ukraine continues to export grain from the three approved Black Sea ports, a backlog of around 150 ships has formed due to inspections delays. “I think we should have another look at some of those (procedures) to see if they may be simplified in some way,” Griffiths said.
Russia has complained the deal isn’t serving the humanitarian purposes that were intended. Griffiths countered, “"This agreement was signed by all people on basis that it’s a commercial enterprise. We would not have the volume if it hadn’t been a private sector-driven enterprise. Everybody knows this – Russia, Ukraine, Turkey and us knew that that’s the basis of the operation. It was not intended at the time to be an operation which was all humanitarian.” He said the deal had brought down prices, boosted export quantities and improved confidence, adding that the deal was “doing what we negotiated, and I don’t think anybody need have any doubt about that.”
Exchange makes deeper cut to Argentine wheat crop forecast... Argentina’s 2022-23 wheat crop will come in at 13.7 MMT, the Rosario Grain Exchange said, down 1.3 MMT from its prior forecast. “There is an unprecedented drought,” said Cristian Russo, a Rosario agronomist, adding that more than half of the province of Buenos Aires, the main farming region in Argentina, was suffering the lowest level of water reserves in 30 years. “We are beginning to realize that we have to adjust lost area,” Russo added, indicating that 9.2% of planted wheat area will not be harvested due to its poor condition, up from the 6.6% previously forecast.
World Bank projects lower but still-elevated energy prices in 2023... The World Bank expects energy prices to decline 11% in 2023 after a 60% surge this year, with slower global growth and continued Covid restrictions in China posing key downside risks. The bank projects an average Brent crude oil price of $92 next year, easing to $80 in 2024, but still well above the five-year average of $60.
World Bank said Russia's oil exports could drop by as much as 2 million barrels per day due to a European Union embargo and restrictions on insurance and shipping.
Saudi Arabia issues warning shot aimed at the U.S. over crude oil and supply agreements... Prince Abdulaziz bin Salman, the Kingdom’s oil minister, accused unnamed countries of using their emergency oil reserves to “manipulate markets rather than helping with shortages of supply.” The remarks come after the Biden administration authorized the release of another 15 million barrels of crude from the U.S. Strategic Petroleum Reserve (SPR) as it tries to curb elevated gasoline prices in the wake of production cuts from OPEC+.
“We, as Saudi Arabia, decided to be the maturer guys,” bin Salman told the Future Investment Initiative Forum, otherwise known as Davos in the Desert. “It is my profound duty to make it clear to the world that losing emergency stock may become painful in the months to come. Running out of capacity has a much dearer cost than what people can imagine.”
The Saudis say the cuts are an attempt at balancing the market, which is not lacking any more crude, but is rather suffering from a lack of refining capacity, a crisis in the natural gas market and too rapid of a transition to renewables that weighs on current hydrocarbon investment.
The American side is still in the middle of formulating a clear policy stance, though Biden has said “there will be consequences” for U.S./Saudi relations. The administration is particularly concerned about the Kingdom’s growing ties with Russia and China, and market volatility that is expected once a European oil embargo goes into effect on Dec. 5.
Bank of Canada hikes rates less than expected... The Bank of Canada (BOC) hiked interest rates by 50 basis points to 3.75%, a 14-year high, though the increase was less than the 75 basis points economists broadly expected. Since March, BOC has hiked interest rates by 350 basis points to combat surging inflation. But the aggressive rate hikes will slow economic growth. BOC lowered its 2022 economic growth outlook to 3.3% from 3.5% forecast in July, and slashed 2023 growth to 0.9% from 1.8% previously. Despite the darkening outlook, elevated inflation, along with ongoing demand pressures meant interest rates would need to go higher, the bank said.
“Future rate increases will be influenced by our assessments of how tighter monetary policy is working to slow demand, how supply challenges are resolving, and how inflation and inflation expectations are responding,” BOC said.
USDA to host webinar on livestock competition and market integrity rule... USDA will host a pre-recorded webinar on proposed rule on competition and market integrity under the Packers and Stockyards Act. USDA’s Agricultural Marketing Service (AMS) will provide information on the Biden administration’s proposed rule published Oct. 3. AMS said it will “discuss the proposed rule and address questions” during the webinar and since it will not be live, questions need to be submitted through Nov. 1. The pre-recorded webinar will be made available on the AMS Fair and Competitive Markets webpage (link), but no date has been given for that to take place. Comments on the proposed rule are due Dec. 3.
