Porto Alegre, November 1, 2022 – In a long-awaited decision, Russia announced the closure of the Ukrainian export corridor created to facilitate the flow of agricultural production amid the war. The UN is still trying to negotiate this war environment and keep the export corridor open. However, markets must price in this difficult context resumed for Ukrainian wheat and corn shipments. On the other hand, the US harvest is reaching its final stretch, and the focus for production is concentrated on planting the winter wheat crops in the Northern Hemisphere and the summer crop in South America.
The escalation of the war between Russia and Ukraine after the destruction of the only bridge linking Crimea to Russia brought new expectations to markets. Wheat had been showing some optimism with the negotiations between the UN and Russia for the maintenance of the export corridor to the ports of southern Ukraine. The martial law imposed by Russia in the four annexed Ukrainian provinces is one of the points that hinder the maintenance of the corridor. Last week, an episode involving the war in the Black Sea prompted the Russian decision, and the corridor will be closed from November. With this decision, the corridor once again blocked Ukrainian shipments, and wheat is the first commodity to register this support movement again in prices.
Although markets are better prepared now than at the beginning of the year for this stoppage of shipments from Ukraine, the context is problematic, as exports from this origin have not managed to have the speed to maintain a high rate of flow of the local 2022 crop. So, world consumers are more prepared for this first impact, but there is a long way to go until the next wheat crops start in 2023. Argentina is already showing a strong decline in production and must have smaller volumes for export, mainly to Brazil.
Europe released a new estimate for the 2022 corn crop to less than 55 mln tons last week. With the Ukrainian export corridor closed, both Europe and the Middle East may increase corn purchases from South America and the United States. The point is that Argentina has already reached the registration export quota for this crop, that is, 36 mln tons. The United States has very high premiums, which puts the local corn cost near USD 340 FOB, while Brazilian corn costs USD 310.
It seems that this international scenario may accelerate purchases from Brazil in the coming few days for shipments from November to March, as it seems more difficult that premiums decrease in the Gulf of Mexico. US corn buyers such as Japan and Mexico may switch imports to Brazil.
The situation of corn in the international market becomes more worrying for the first half of 2023 compared to the first half of 2022 due to this environment of low stocks and the long supply path until the entry of the 2023 US crop, in September. The focus now is on the fundamental observation of the Argentine crop. Argentina will be the major exporter in the first half of 2023 and could be the major supplier to Europe and Asia as of April. Of course, its production needs to be lucky enough to have favorable weather in a La Nina year.
Last week, good rains hit the region of Nucleo, Córdoba, Santa Fe, and Buenos Aires. As it is still very dry, the sequence of rains is essential from now on, but it was enough to start planting in this main growing region, since in the north of the country the planting is advancing fast. A more problematic situation for the climate in November and December for Argentina could be priced by the international market immediately. This is because Brazil will not be able to supply the world market with large volumes after February, either because of its domestic supply or because of the logistical conditions amid a record soybean crop.
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