Uncertainties and new agreements shake up the grain market

Following Donald Trump's victory, markets are on hold, speculating on the impacts of the change in US government on commodity markets.

“The escalation of the conflict in the Black Sea between Ukraine and Russia brings uncertainty to the grain market, especially wheat, also affecting freight prices,” says Ignacio Espinola, Senior Grain Analyst at Hedgepoint Global Markets.

Rising tensions could raise transportation costs in the region due to the risk of attacks and the “ice premium,” an addition of $1 to $2/mt to the price of goods during the winter.

“Furthermore, the increase in freight prices could lead to an increase in the final CIF cost, given the risk of shipping companies refusing to operate on the route as a result of the war,” notes the analyst.

Brazil-China: Sorghum exports

In the sorghum market, China has authorized Brazil to export the grain, which could affect global dynamics by replacing part of the US imports. This type of grain is used for animal feed and alcoholic beverages.

“Brazil, with a harvest 40% smaller than that of the United States, could start to compete in the sorghum market, impacting corn production, especially in the US,” he highlights.

“China is the main destination for sorghum from North Americans, representing 88% of global imports of this grain. With Brazil’s authorization to export to China, national production can increase, replacing corn areas with sorghum,” he points out.

This scenario could change the global dynamics of the sorghum market, especially considering that sorghum was affected by the trade war in 2018.

Conclusions

Investment funds, currently with net short positions in soybeans, soybean meal and soybean oil, as well as corn, cotton and wheat, reducing the long position in corn by half, 15 thousand contracts.

There was also a net position shift from short to long two weeks ago, the first time they have been long since June 23rd when they were at 2k.

Speculation about the impact of the Black Sea conflict and the Brazil-China agreement raise doubts about the future of the corn, wheat and sorghum markets. China's purchasing behavior, especially in the soybean market, is also an important issue for soybean prices.

The end of the year brings additional pressure, with liquidity affected by closing positions and realizing/taking profits or losses to close the year.