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Turner's Take Ag Markets | Argentina Issues Special Soybean Exchange Rate

By: Craig Turner, Senior Risk Management Consultant

Turner's Take Ag Markets
 
Craig Turner
Senior Risk Management Consultant
Turner's Take Podcast

MACRO MARKETS | Russia's biggest natural gas pipeline to Europe will not resume pumping until Siemens Energy (Germany)  repairs faulty equipment. This came from an high level executive at Gasprom (Russia) and during a time when the EU is facing its worst energy crisis since WWII.  Does anyone really believe this is just about equipment? Europe and Russia are in the midst of an energy war and winter is only a few months away.  Energy prices in the UK and other nations in Europe could be 10X higher than last year.  If my energy bill went up 10X it would be more than my mortgage.  The EU is likely to go into a deep recession with high inflation, lack of energy resources, a slowing economy, and a central bank that is stuck between fighting inflation (higher rates) and trying to spur growth (QE).  The EUR/USD is now below 1.00.  The all time low is just under 0.84.

 

GRAINS | Wheat leads the market higher after the three day US holiday weekend. The strength in wheat is helping corn stay positive in spite of negative oilseed price action.  The USDA will release their next WASDE report on Monday and the trade is looking for lower grain yields in the EU and US, with corn losing the most production.  

Wheat demand has picked up on the export market now that prices have dropped in the futures and cash markets.  South Korea bought 65K tonnes of feed wheat from Australia for Dec-Jan shipment.  South Korea also put out a corn tender that includes Ukrainian and Russian origin.  Egypt has agreed to purchase 63K tonnes of wheat "at the Russian supplier's responsibility."  We are now seeing major buyer willing to go to the Black Sea. It was interesting to see Egypt able to negotiate and put the insurance responsibility on the supplier. 

We expect the USDA to lower yields on Monday.  These cuts are largely priced in and any bullish surprises may be capped due to macroeconomic headwinds.  Inflation, higher interest rates, recessions, and now the escalating EU energy crisis all hurt demand prospects (and fund money flow) into the grain markets.  We expect a choppy weak for wheat and corn.

 

OILSEEDS |   Argentina's Ag Ministry announced new incentives starting yesterday for farmers to sell more soybeans by using a better USD exchange rate for the rest of September.  Argentina is attempting to boost exports  and build currency reserves.  Farmers have been holding onto soybeans due to their nations 70% inflation rate.  Producers of commodities have been storing as much as possible as an inflation hedge.  The current exchange rate is $1 to 140 pesos.  The government is increases it to 200 pesos for September.  The news led to traders selling soybeans when we reopened and dragged canola lower as a result.

Global oilseed stocks are getting looser.  Corn stocks are getting tighter.  Wheat stock are neutral but the ongoing war in the Black Sea is still supportive.  Ukraine is expecting a significant decline in new crop winter wheat seeding, especially in areas where fighting continues.  The world appears to be heading into an energy/stagflation led recession.  Fundamentals may be bullish for grains but the macro headwinds are substantial. 

 

 Craig Turner
800.958.9470 Toll-Free
312.706.7610 Local
312.706.7510 Fax
craig.turner@stonex.com
@Turners_Take
 
 
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