Update for June 10th, 2022
USDA Worksheet, Ukraine/Russia & Dome of Doom Official results from the June 2022 USDA Supply and Demand report were released earlier today, the data was mostly considered a non-event. The trade had expected to see a slight reduction in corn and wheat ending stocks but instead those numbers were raised. For soybeans the old-crop export number was bumped higher but so was the Brazilian soybean production estimate. No adjustments were made to U.S. new crop corn or soybean yields. The USDA Acreage and Quarterly Stocks reports are up next and will be released June 30th.
Turkey has been negotiating a grain deal between Ukraine and Russia for several weeks. Such an agreement would allow for safe passage of grain exports through the Black Sea in an attempt to ease the threat of a world-wide food crisis. Russia seized large portions of the Ukrainian coast nearly 15 weeks ago and now their warships control the Black and Azov Seas. This has blocked farm exports from Ukraine and as a result is driving up the cost of grain. Ukraine and the West are accusing Russia of “weaponizing food supplies” by putting forward “unreasonable proposals”. The Kremlin has said that in order for Ukraine to resume exports of grain from their ports the West is required to end all sanctions and allow inspection of all vessels. Another hurdle to the movement of grain through the Black Sea will be the removal of hundreds of naval mines which the Ukrainian Grain Traders union estimates will take a minimum of 2 to 3 months. (Reuters)
The Black Sea is a major shipping channel crucial to many countries in the region. In addition to Ukraine and Russia these waters are also shared by Bulgaria, Romania, Georgia and Turkey. According to International Maritime Organization, “Sea mines have been laid in port approaches and some port exits are blocked by sunken barges and cranes”. While the Black Sea tends to be a rather calm body of water floating mines can drift many miles over time, some have been reported as far away as Turkey and Romania. Currently 84 foreign grain cargo ships are stuck in Ukrainian ports, many of which are loaded. Guy Platten, secretary general of the International Chamber of Shipping warns, “It’s not safe for ships to get in or out at the moment. Until the mines are swept, that situation is not going to change”. Two seamen have already died and 7 merchant ships have been damaged by projectiles, sinking 2 of them near Ukrainian ports. This has placed the region in a “high-risk” category according to the London insurance company that insures shipping vessels. This has caused shipping rates to soar. “Underwriters for their part would need some kind of assurance that it’s been done to a given degree by competent minesweepers.”
Ship from Estonia sunk by naval mine near port of Odesa
The blockade of Ukrainian ports is now putting the countries new crop at risk. According to the Ukraine Grain Association, grain silos located within Ukraine’s government-controlled territory can hold around 55 MMT but currently are over half full with nearly 30 MMT still stored. Additionally, 13 to 15 MMT of grain storage capacity is now within Russian occupied areas. Given the current storage situation estimates are that farmers may be forced to leave half of their corn crop in the field beyond the harvest season. If Ukraine is unable to access their Black Sea ports a best-case-scenario for grain exports next year is around 20 MMT. Of these 20 MMT the lion-share of the exports will likely be sunflower seeds followed by corn and wheat.
Spec Funds have held record long positions for many weeks. This had placed markets in a vulnerable position to fund selling but a few key factors are providing strength to prices. U.S. supplies of corn and soybeans are tight which has led to strong basis values for both crops. Exports of U.S. ag supplies remain strong. A “Dome of Doom” is expected to develop next week. Forecasted temps are expected to reach far above-normal coupled with little to no rainfall across the Corn Belt while the heat dome is in place. And of course, the ongoing war between Russia and Ukraine which has virtually cut off a major global supplier of grain from the rest of the world.
See below the 50-year charts for corn and soybeans:
CONAB says the estimated total grain and oilseed production in Brazil will be lower than initial estimates but will still be the largest combined crop ever for the nation . Early numbers show Brazil’s total soybean crop to be near 124.2 MMT, up slightly from May but down 10.1% from the total in 2021. The countries 2nd corn crop harvest is just getting underway in some areas. This seasons Safrinha crop is projected at 88.016 MMT which is up 45% from 2021, but at this point of the growing season approximately 25% of the crop is still at risk from the weather. Total production for the country will be significantly larger than a year ago thanks to the additional planted area. (Platts)
Monday a warm front makes it way into our region as a strong heat dome is set to expand into the central Midwest. The EURO Model expects temps to soar Monday and Tuesday and possibly into Wednesday with reading reaching the mid to upper 90’s and some areas to the southeast climbing up to 100 degrees. The GFS Model expects more cirrus clouds will be present limiting temps to the upper 80’s to 90’s.
Another front is expected to move in Wednesday night that could produce storms and lower temps back to seasonable levels for a couple days. Signs indicate though that the ridge is forecast to rebuild over the Fathers Day weekend offering more heat and humidity. This ridge has the potential to put the central Midwest very close to the “ring of fire”.
Right now, models indicate that the dome may be gone around June 24-26.
The Climate Prediction Center temp outlooks for the 6-to-10 and 8-to-14-day periods are shown below.