Weather a Bigger Market Driver Than Expired Black Sea Grain Deal

Russia has officially abandoned the Black Sea Grain Deal. Joe Vaclavik, founder and President of Standard Grain, says the question is how long the deal will be off the books.

He says, “It’s canceled for now, but Russia has kind of left the door open. They said if our demands are met, we could, again, continue the brand deal, so this is something that could be suspended for a day, a week, or a month. We don’t know. In terms of the impact on the market, Monday, we rallied early on this news, and then we sold off, so I think, at the end of the day, it’s not the biggest deal in the world. You have to remember; Ukraine has become a much smaller exporter of all these crops since pre-invasion type days. Pre-invasion, I went back this morning and looked at the February 2022 WASDE report prior to the invasion. USDA was projecting at that time that Ukraine would account for almost 12 percent of all global wheat exports, so they were a pretty big deal, right? Well, this year, the projection is that they’re going to account for 4.9 percent of all global wheat exports, I believe, a much smaller percentage. So, I just don’t think it’s the deal that it used to be.”

It’s probably more important to the corn market according to Vaclavik. “USDA projects, I believe this year, they’re going to be just south of 10 percent of all global corn exports. Even if the deal is suspended indefinitely, those numbers aren’t going to go to zero,” says Vaclavik. “They’re still going to rail to grain out west through Europe. That’s been going on for a while, so I don’t know. I don’t think that’s the big market-mover here today. Actually, I think the weather forecast is the bigger deal today.”

Vaclavik says it’s not surprising to see Ukraine drop that far in how much grain they’ll ship around the world. He says, “No, it’s not shocking at all. I mean, production is down, exports are down, so nothing is surprising about it. We’ve got a war going on. The farmers are having an incredibly difficult time with everything, I mean, seed, fuel, labor, you name it.”

He says dry weather in the U.S. is currently the biggest driver in the markets. Vaclavik, “Right now, it’s the middle of July. We are trading U.S. weather almost exclusively, and you have a forecast which turned decidedly drier last night and into this morning. There’s not much rain in sight at all for the central Corn Belt between now through the end of the month. And there’s some heat in the forecast for next week. We’re talking 90s, maybe 100 degrees by Thursday or Friday next week across the entirety of the central Corn Belt. Now, I know that we’ve got seed corn that’s drought-tolerant and has fantastic genetics, and this year may be a very good test of that because we’re running huge moisture deficits across the board despite the fact that we’ve seen to improved rainfall here in July. But this forecast is, at least for the short term, bullish. I don’t know if that means the crops have to deteriorate in terms of condition, but it doesn’t help.”

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