In an article for agrotimes.ua, Spike Brokers’ Commercial Director, Oleksandr Solovey, discusses key trends in the grain market for the upcoming months.

In February and March, we expect maximum export activity in the grain market.

Any market operates and develops according to certain cycles and its inherent rules.

This season promises to be quite favorable. However, in addition to the classic “signals” influencing pricing and markets, a factor of geopolitical turbulence will also come into play.

Season’s Favorite

When discussing the pace of grain exports, it’s important to consider the actual volumes of grain shipped abroad by a specific date, as well as already contracted batches for the upcoming months from producers, which may already be in transit. This data provides a comprehensive understanding of the remaining supply of a particular crop for free trade in export logistics. As of the end of January, corn exports are expected to be around 10 million tons.

It’s worth recalling the fundamental principles of this season. This marketing year, Ukrainian farmers harvested about 18% less corn than last year. Moreover, with no carryover stocks at the beginning of the year, this created tension in the supply-demand balance since September. Considering the expected corn exports at the end of January, the remaining export volume will be around 13 million tons, of which up to 3 million tons have already been contracted by producers for shipment in February and March. Therefore, less than 10 million tons of corn remains available for export, which will maintain pressure on the supply-demand balance until the arrival of the new feed wheat crop in August.

Historically, February-March are peak periods for corn shipments to foreign markets, so the future market context in Ukraine and Europe will depend on the volumes remaining in Ukraine starting from April.

Corn dominates our exports, and the pace of its shipment abroad is generally good. Moreover, in the coming months, no decline in demand from the external market is expected. On the contrary, we will see an increase in market activity, which will support prices under favorable geopolitical conditions.

In particular, the depreciation of the US national currency positively affects the dollar equivalent of corn globally. Therefore, thanks to this factor as well, European traders have begun to show more interest in Ukrainian products, which are mostly traded in dollars. In case of euro strengthening against the dollar, we will also see an increase in the dollar equivalent of prices.

Wheat Demand

As of the end of January, around 10.6–10.7 million tons of wheat have been exported. Comparing this data with the Memorandum’s fixed maximum wheat export volume of 16.2 million tons, we understand that about 5.5 million tons of grain remain available for export. Currently, the wheat export pace is slightly over 1 million tons per month. This essentially suggests that in five months, all the remaining stock will be exported.

At present, approximately 4 million tons are available for trade, as 80% of the batches scheduled for export in February and March have already been sold and are being prepared for shipment.

Typically, from January to March, global market prices begin to focus on Argentina, Australia, and Canada. Thus, globally, the remaining wheat from the Northern Hemisphere and the increase in sales from the Southern Hemisphere in the second half of the marketing year will act as a restraining factor for export developments.

Fundamentally, we will be balancing between the presence of Russian export shipments to our key markets in Africa, the Middle East, and Asia.

At the same time, in more distant sales markets, Ukrainian wheat will actively compete with grain from the USA, Argentina, Australia, and Canada.

However, in January, Russia’s wheat export pace was the lowest since 2017. This indicates that Ukrainian grain has a chance to complete this marketing year without potential price drops, even with an increase expected by June-July.

Of course, certain factors could influence wheat market pricing during the period until May-June. In particular, the condition of crops, which will become clearer by the end of February — early March, will play a significant role in shaping the wheat market outlook for the spring. Already, some traders are positioning their views on the new crop wheat, anticipating a reasonably good price level for the start of the season.

Currently, new crop food-grade wheat is actively trading at a level of $200+ per ton, while feed wheat is priced slightly below $200 per ton. Prices for the new crop corn are around $200 per ton. This provides a decent profitability at the start of the season for these crops. However, at the same time, these are relatively high levels for the global feed and food industry, so resistance to further price increases should be expected.

Given the highly aggressive geopolitical context worldwide, where some markets or suppliers could be cut off in a single day due to certain political decisions, this could significantly disrupt all supply chains. Therefore, it’s better to opt for a more conservative strategy this season: under favorable new crop prices and promising forecasts for specific farms, it would be a rational decision to sell up to 30% of the future grain crop in advance.

“Fortune Telling” with Beans

As of the end of January, Ukraine has exported about 2 million tons of soybeans, leaving a remaining export potential of 1.7 million tons. Typically, a large portion of GMO soybeans is directed toward MENA markets. Additionally, compared to previous years, the presence of Ukrainian soybeans in the European market has increased, which is a rather positive trend. Therefore, we need to actively strengthen our connections and compete more aggressively for the EU market, which is the most attractive in terms of logistics and price.

The main driver of the global soybean market is Brazil, making it increasingly difficult to compete with products from this country year after year. Currently, there is a delay in the harvesting of oilseeds there, which has affected soybean prices on the Chicago Board of Trade, which had previously strengthened following a USDA report. There was an expectation of a surge of Brazilian soybeans into the global market, not a delay in the harvest in this country. Traders and processors, who were waiting for soybeans from Brazil, began actively buying oilseeds, which led to a significant price boost for both the old and new crops.

It’s also worth noting that the delay in soybean harvesting in Brazil directly affects the timing of corn sowing in the country. Thus, the delay in the soybean harvest in this South American country will also support corn prices.

The European Context

The European soybean market will be under pressure from accumulated stocks and new shipments of Brazilian products, with more active deliveries expected in the second half of February. This creates significant challenges for Ukrainian producers, as Brazilian and American soybeans are cheaper than Ukrainian ones.

It’s important to note that while the European market will be influenced by Brazilian products, it is segmented and has its own limits. Therefore, those who have already started buying Ukrainian products will likely continue to do so.

Moreover, this season Ukraine has expanded its presence in the European soybean market by 3%. If last year we exported only half a million tons to Europe, now nearly 900,000 tons have been shipped to EU countries. Considering that our total export potential for soybeans is around 3.7 million tons, over a quarter of this goes to EU countries. Turkey accounts for about 30% of Ukrainian soybean exports, followed by Egypt and other African countries.

I am convinced that the Ukrainian market needs to be segmented based on proximity to sales markets and the presence of processing industries in a particular region. Therefore, developing partnerships and integrating the Ukrainian market into the European one is the most logical approach. The EU market is strategically the most stable, secure, and solvent. It is right next to us. Instead of searching for markets in Africa with an additional premium of 2–3 dollars but with certain risks of non-payments or payment delays, we should strategically focus on developing partnerships for production and processing toward the European Union.

Rapeseed Intrigues

Ukrainian rapeseed is typically actively exported during the first four months after harvest. Currently, nearly 3 million tons of rapeseed have been shipped abroad, leaving only about 200,000 tons available for export. So, in fact, this season has successfully concluded for rapeseed producers.

However, the outlook for the next season is highly uncertain. Rapeseed is a raw material for the biodiesel industry, and its development and pricing directly depend on oil prices.

Thus, if oil prices drop significantly, then, despite expectations of lower rapeseed production volumes in Ukraine and Europe, factories may reduce their consumption and demand. This uncertainty among European processors is now very evident; they are hesitant to enter into forward contracts following the new U.S. president’s initial statements about plans to lower oil prices.

Therefore, the geopolitical context and plans to reduce oil prices could impact oilseed and grain markets, particularly in Ukraine, which exports a lot of raw materials. Oil price fluctuations may affect the prices of rapeseed, soybeans, and corn, which are also processed into bioethanol and biodiesel. Thus, it might be prudent this year to consider forming a forward sales portfolio based on 20–30% to ensure profitability.

Battle of the Titans

The U.S. and Brazil are direct competitors in the soybean and corn markets, and their presence in the EU market grows every year. Therefore, the allocation of planting areas in favor of grain or oilseeds in the U.S. and Brazil will influence the global market and pricing.

American farmers, even without considering the political agenda of the new U.S. president, are taking into account the global context of increased competition in the soybean market from Brazil and China’s reduced interest in importing agricultural products. It is currently expected that U.S. farmers will increase corn plantings by 2–3 million acres (up to 94 million acres). If weather conditions are favorable, the grain harvest could reach new records this year, which would significantly impact the global market and keep it under pressure.

Given the rather aggressive geopolitical context, we may wake up one morning to official news of trade tensions being resolved between the U.S. and another country. So, we are in for a very intense and volatile year.

Old and New Crops

Typically, for the corn market, a key factor in late February to early March is confirmation or rejection of expectations regarding the allocation of planting areas in the U.S., which can lead to significant volatility and price corrections for even the old crop.

In the wheat market, the processing industry plays a role. When the new crop is traded significantly lower than the old one, the industry may switch to a “stand-by mode.” They wait for the new harvest, meeting their needs with substitute products or even buying flour instead.

Currently, our new wheat crop is traded almost $20 lower than the old crop grain. If this disparity continues, by April or late May, processors may hold off on actively purchasing the old crop grain. This typically balances out the price difference between the old and new crops because more active processors begin buying the new crop, and the price of the old crop declines accordingly. As a result, prices usually equalize. A similar situation applies to corn, but the price alignment tends to occur later in the season.

Freight with a Strategy

If no obstacles arise in February, we can expect peak grain sales and corresponding peak export rates. Therefore, logistics, which had previously lowered freight rates due to lack of demand, will increase freight costs to recover earlier losses.

For example, in November, the price of wheat with 11% protein in Egypt on a CIF basis was $232/ton, while food-grade wheat in Ukraine traded at $204–205/ton on a CPT basis at sea ports. Currently, the price of food wheat in Egypt is $245/ton, and in Ukraine, it is $225/ton. This means that the CPT market price in Ukraine has increased by $20/ton with delivery to the port, while the price with delivery to Egypt has risen by only $8/ton. This indicates that the logistics market context can be either favorable or unfavorable for local prices in Ukraine.

The price increase in Ukraine, which is almost 2.5 times higher than that in destination countries, was primarily due to the reduction in freight costs.

However, the current logistics market context may be less favorable for domestic prices. The activation of shipments will undoubtedly lead to an expansion of sea logistics by 10–20%, which will immediately affect the reduction of CPT prices at sea ports.

We are now entering the active phase of marketing products and the leftovers from the previous marketing year. Therefore, those who decide to adopt a more stable and balanced sales strategy for the future harvest will begin actively signing forward contracts. Before the full-scale war, Ukraine had one of the most robust forward programs. Typically, up to 50% of the new harvest was sold in advance by May, which helped balance the market. Having pre-contracted products removes the excess supply burden during the harvest, thus stabilizing prices.

Of course, there are certain tricks when working with forward contracts. It’s worth working closely with your commercial agent to develop the optimal trading strategy in terms of quantity, quality, and logistics. For example, from the experience of companies contracting the harvest, it is better not to sell wheat solely as food-grade under forward contracts. It’s more advantageous to sell either feed wheat or sign a so-called multi-class contract. A farmer, not knowing the quality of the product they will produce but wishing to sell a certain amount of wheat in advance, can stipulate in the contract that they may supply products of three different quality types at three different prices, while fixing the overall volume of the shipment.

Currently, Ukraine has implemented minimum export prices, which are significantly lower than the current market prices.

Logistics are now the cheapest. So, it makes sense to approach a carrier and lock in freight costs under a forward contract, considering that the calculated price will consist of the current transportation cost with a small premium. This would be much more profitable than waiting for transportation during the low-price season when freight costs rise amid heightened demand.

In Europe, the industry selling finished products demands advance planning of production and the corresponding procurement of raw materials. Logistics alone in this chain can take up to a month. Additionally, the raw materials must be processed, packaged, and so on.

Therefore, Ukraine will have to adopt the logic of long-term contracts, allowing the opportunity to secure profitability in advance. This also provides business stability, which must be skillfully used and managed for the benefit of the business.