Growing Grain Supply Risks Amid Russia-Ukraine Tensions and Weather Challenges

Agriculture – Grain supply risks grow

CBOT wheat rallied more than 8.5% yesterday, while corn prices also moved higher. This comes after Russia attacked Ukrainian port infrastructure along the Danube River. Ukraine has increasingly relied on the Danube for shipments since the war, and after Russia pulled out of the Black Sea Grain deal, Ukraine was set to rely even further on this route. This does make it more difficult for Ukraine to export grains and potentially leaves exporters more reliant on moving grain westwards by rail and road. However, obviously, there are logistical constraints redirecting flows via these routes. I

n addition, there are concerns in neighbouring EU countries over the inflow of Ukrainian grain. However, up until now Ukrainian exports are still stronger year-on-year. Recent data from Ukraine’s Agriculture Ministry show that grain exports so far this season stand at 1.66mt, up 19% YoY. This includes wheat exports of 563kt, up 73% YoY, and corn exports of 915kt, down 3% YoY. These export volumes will be watched closely in the coming weeks given recent developments.

The United States Department of Agriculture's latest weekly crop progress report shows that 68% of the US winter wheat crop was harvested as of 23 July, compared to 56% from a week ago and 76% at the same stage last season. For corn, 57% of the crop was rated good-to-excellent, unchanged from last week, but down from 61% last year. The USDA rated 54% of the soybean crop as good-to-excellent, marginally lower than 55% from a week ago and the 59% reported a year ago.

The European Commission’s monthly MARS report for July shows a drop in wheat yield projections close to the five-year average at 5.59t/ha for 2023, compared to 5.7t/ha projected in June due to unfavourable weather conditions. Warm and dry conditions across the western, central, and northern regions continued to lower the soil moisture and undermine crop yields. Meanwhile, excessive rainfall in some regions also reduced the quality of the crop. For corn, the European Commission estimates yields to drop to 7.53t/ha from a previous projection of 7.61t/ha. However, this is still above the five-year average of 7.48t/ha.