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In the last few months, two factors have emerged to be the primary drivers for corn prices. One is the war in Ukraine, and the other is weather.
Let’s look at the situation in Ukraine.
Ukraine was a major exporter of corn before the war, about the fourth biggest exporter in the world. About 90% of Ukrainian exports happened via deep sea ports. Since Russia invaded in February this year, ports have been blocked and not accessible for export purposes, effectively cutting off Ukrainian corn from the world market.
Now, the Ukrainians are inventive and creative and did find other routes to export their corn via rail to EU neighbors and from shallow water ports near the Danube. But these are very expensive routes. They’re not particularly well developed. The infrastructure lacks investment, so it isn’t a viable long-term option. This has put a massive upward pressure on corn prices in global markets.
And then, in July, came the UN-brokered grain deal, which enabled Ukraine to reopen three of the black Black Sea ports: Pivdennyi, Odesa and Chornomorsk to bring corn back to global markets. In fact, corn has been the product to benefit the most from the grain corridor agreement. And this has released some of the pressure on prices.
However, we’re not talking about a smooth-running corridor. Every week, if not every day, we hear news from the market that leads to uncertainty as to whether shipments will continue to go through the corridor route or whether the agreement will continue after a given deadline.
We’ve seen Russia pull out and suddenly rejoin the initial deal that was agreed for 120 days. We’ve seen massive delays in inspections, and each step along the way is a driver of prices and adds up to high volatility in the corn markets.
The other driving factor I mentioned is weather. This year we’ve seen prolonged hot and dry weather in many key producing nations.
In the EU, France has its worst corn crop in 30 years. Bulgaria and Romania have had a catastrophic crop and similar things are happening in the US. Here, again, the hot and dry weather impacts barges moving along the Mississippi river to get corn to the ports and then onto global markets.
This, again, is an upward driver of prices in the global markets. We’re still seeing a lot of uncertainty this week, and it’s difficult to predict how things will progress and what that means for the corn process in the future.
Right now, we’re looking at corn exports of the old crop in Brazil, as the new crop is not there yet.
Last year’s crops suffered massively from the La Niña effects, and there was definitely an expectation that exports would be lower. In fact, exports have probably been twice as much as they were the year before. Brazilian exports, despite expectations, have been excellent. This is mainly due to the problems elsewhere in the globe and other major producing nations experiencing a shortage. Brazil has been able to fill some of the gaps and respond to foreign demand.
Looking at next season’s crop, right now, the expectations are much higher. Forecasts indicate better corn crops than we had in the last season.
Although the upcoming soybean season could present a challenge.
While it’s true that, up until now, Brazil has been exporting huge amounts of corn, there are only so many ports and terminals available. So, it’ll be interesting to see what will happen as the soybean crop comes in, and Brazil will need to export more soybeans too.
This is something we’re going to be watching over the next few months.
This is a tough one to measure. The situation changes from week to week and from month to month.
Typically, you can only export smaller volumes via shallow water ports and rail.
There are lots of logistical issues. There are only a certain number of wagons to take corn by train.
The positive thing is that Ukraine has had a lot of help from EU neighbors to try and increase the volume of agricultural products they can export via these overland routes, which will continue because of the uncertainty with the grain corridor.
The corridor deal may be extended for another 120 days once it expires; we just don’t know.
We’re monitoring the situation, but nobody wants to put all their eggs in one basket in this situation, so whatever happens, the investment in the overland infrastructure will continue.
One interesting thing we’ve seen in the last month or so is that shallow waterways can sometimes prove cost-effective.
They’re typically more expensive than deep sea routes, but if we consider the massive delays in the shipment of grain coming out of Ukraine by the grain corridor and the amount people are paying in demurrage because of the delayed inspections of cargoes, then shallow water routes could be seen as quite efficient. It means that sometimes exporting through river can be a cheaper option.
Sharon Levrez will be speaking at our upcoming Global Grain and Animal Feed event in Singapore, click here for more details.