Category: ECRUU weekly

In a shock move that may lead to panic in the markets, India, the world’s second-biggest wheat producer,  has banned wheat exports with immediate effect. The ban excludes exports which already have a letter of credit opened against them but includes forward sales, leaving exporters no choice but to declare force majeure on later shipments. The directive gives the government some wiggle room by hinting government-to-government sales may still be allowed. Meanwhile, the early arrival of monsoon rains could provide farmers with some relief.

India exported a record seven mln mt in fiscal 2021-22 and a record 1.4 mln mt in April, the first month of the 2022-23 fiscal year. Traders have already contracted to export 4.5 mln in 2022-23, and the country had earlier targeted to export a record ten mln mt in 2022-23.

In their latest WASDE report, the USDA had pencilled in India to export 8.5 mln mt. The agency forecasts 2022-23 global wheat production at 774.8 mln mt, the first decline since the 2018-19 season, and stocks at 267 mln mt, the lowest level in six years. It expects the US winter wheat shortfall could be more severe than previously believed and that the country’s wheat exports could be the lowest since 1971/72

The USDA puts Russian production at 80 mln mt, up from 75 mln mt last year, with exports at 39 mln mt, up from 33 million mt. It predicts (guesses) Ukrainian production at 20.5 million mt, 11.5 million lower than in 2021/22 and puts exports at 10 million mt, down from 19 million. Many traders believe that even ten mln mt of exports would prove too high.

The Chinese government is cracking down on the illegal destruction of wheat crops for construction sites and silage for animal feed.  An analyst told Bloomberg that given the poor conditions of the crop, it isn’t surprising that farmers are cutting the wheat for hay as it may offer a better return than grain.

A drought threatens the wheat harvest in France, where the first quarter of this year was among the ten driest winter periods on record for some regions. The one bright spot for wheat is in the Canadian Prairies, where wet conditions are delaying crop planting of corn and soybean and may increase wheat acreage.

The European Investment Bank (EIB) has said that Ukraine has €8bn worth of wheat from last year’s harvest that they can’t export. An EIB spokesman said, “They are sowing like crazy right now, and they will expect probably a good harvest, maybe 70 per cent of last year’s harvest, in a couple of months – and then what to do with it?”

The European Bank for Reconstruction and Development (EBRD) is considering financial support for Ukraine’s transport and logistics companies to help them maintain their exports. Ukraine last week formally closed its four Black Sea and Azov Sea ports, which Russian forces have captured, leaving land routes through neighbouring countries as its only export option.

Ukraine’s president has called for the end of the naval blockade of the country’s ports to allow wheat shipments.

The EU is exploring ways of getting around Russia’s Black Sea blockade by taking the overland route via EU roads and railways. Canada has also offered to help, but transporting Ukrainian grain by land into Europe can be difficult. The port of Constanta in Rumania is doing its bit, but in the meantime, the Russians are stealing Ukrainian grain and exporting it as their own.

Malaysian palm oil exports surged 40 per cent in the first ten days of May compared with the same period during the previous month after Indonesia imposed an export ban. The ban gives Malaysian palm oil an edge, and the government is considering cutting its export tax on palm oil. It also plans to slow the implementation of its biodiesel mandate.

Despite the export ban, Indonesian consumers complain that their domestic vegoil prices haven’t fallen. Indonesian customs officials have impounded eight shipping containers of cooking oil at Tanjung Perak port bound for East Timor. Those found guilty of breaching the cooking oil export ban could face five years of prison and a fine of up to 5 billion rupiahs ($341,997).

The FT writes that food nationalism is fuelling global inflation and hunger amid warnings of social unrest in Africa, where processed food manufacturers are substituting wheat with manioc flour and sorghum. The Guardian suggests cassava could be the best alternative.

The Ivory Coast is asking for $1.5 billion in private investment to restore degraded forests and increase food production. Meanwhile, the price of chilli sauce is rising steeply in Ghana.

Cotton prices also headed higher on world markets on fears of an Indian export ban and dry weather in the US.

US egg prices rocketed by 23 per cent between March and April as the country’s worst-ever outbreak of bird flu killed more than 37 million chickens and turkeys.

UK poultry producers warn that chicken could soon cost as much as beef due to the rising price of feed, and UK consumers are suffering. The Food Foundation reports almost 10 million Britons cut back on food or missed meals last month. (Ecowatch has published a timely guide on foraging food from the wild rather than buying it in a supermarket.)

There is some optimistic news from Australia, where researchers have identified a genetic driver in wheat that could increase protein content by up to 25 per cent.

Finally, the World Bank has published a book entitled Commodity Markets – Evolutions, Challenges & Policies. I haven’t read it yet, but you can download it here.

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After increasing 13 per cent in March, the UN FAO food price index fell about one per cent in April. Vegetable oil and grain prices dropped, while meat and dairy prices increased.

Up to 20 million people could go hungry this year In the Horn of Africa as delayed rains exacerbate the worst drought in four decades.

Some people are asking if the world is running out of grain.  Although that is unlikely, Arab countries are building stocks and have increased food shipments from Brazil. The US administration is taking the issue seriously enough to organise a conference in September on food security – the first in 50 years.

All eyes are on the weather in India, where a record heatwave could decimate the country’s wheat harvest. There is market talk that India could limit wheat exports, hurting neighbouring countries the most.

India exported a record 7.85 million tonnes in the fiscal year to March – up 275 per cent from the previous year, the government faces a dilemma this year as to whether to export any surplus or keep it at home to dampen inflation.

The French wheat harvest could also face challenges., although the EU’s Agriculture Commissioner says that “the EU itself does not face a food security risk”. The FT disagrees, arguing that shortages of diesel and fertiliser put production at risk. The FT also writes that Turkey’s farmers face hard times following the collapse of the Turkish lira and a surge in input costs.

As of 5^th May, Ukrainian farmers had sown 7.1 million hectares, about half of their forecast acreage. Spring wheat planting is now 97 per cent complete, compared to 89 per cent on the same date last year. Even so, satellite images suggest that the country’s wheat crop could fall by 35 per cent compared to the previous year.

Ukraine has accused Russian forces of stealing “several hundred thousand tonnes” of grain in the areas of Ukraine they occupy. There have been unconfirmed reports that stolen grain is being exported from Russian ports.

Ukraine could have a significant shortage of storage facilities due to a sharp fall in exports. At the end of the current season, oilseeds stocks might reach an all-time high of 21.3 mln mt.

Ukraine hopes to grow export capacity by 50 per cent in the next few months by expanding facilities on its western border, but it will still be far short of pre-war levels. The country exported 3.5 mln mt of cargo by rail last month. The UN FAO says that 25 mln mt of grain are stuck in Ukraine it doesn’t know when it can be accessed. A spokesman called the situation “grotesque”.

The cost of insuring merchant ships sailing to ports in the Black Sea has spiralled out of control, with underwriters charging as much as 10 per cent of the value of the vessel’s worth as an additional war-risk premium.

India plans to cut taxes on some edible oils to lower domestic prices. The BBC believes that the war in Ukraine and the Indonesian export ban are “a wake-up call” for India. However, India’s government says they are not worried about the export ban as the country has adequate stocks, and Indonesia has “no option other than export.” (The EU also says it has enough supplies to ride out the ban.)

Malaysian palm oil production should pick up with workers returning to plantations as the Ramadan season winds down. Malaysia’s domestic palm oil stocks are rising.

The Indonesian government’s vegoil policy measures are testing the country’s patience. Indonesia earned US$35.5 billion from 26.9 million tonnes in total palm oil exports last year, the most important markets being China (4.7 mln mt), the European Union (4.0 mln mt), India (3.03 mln mt), and Pakistan (1.6 mln mt).

Analysts expect fertiliser makers to post their biggest quarterly profits in years. They warn that supply disruptions could extend beyond 2022 and could even worsen.

Vietnam’s coffee production may fall ten per cent this year as farmers plant more profitable crops like avocados, black pepper and durians, helping them cope with the high fertiliser and fuel costs.

Australia’s biggest investment bank Macquarie Group saw full-year net profit up 56 per cent from the previous year to a record A$4.7bn ($3.3bn). Commodity earnings were up 50 per cent to A$3.9bn.

Maersk reported its best earnings quarter ever in Q1 2022 with a 55 per cent increase in revenue to $19.3 billion. EBITDA more than doubled to a record $9.1 billion. The company’s CEO told Bloomberg that it wrote down more than $700 million as the transport giant counts the cost of exiting Russia. Cargill and General Mills, however, continue to do business in Russia.

Drewry estimates the world’s container-line industry may make $300 billion in profits this year, up from $214 billion in 2021, before the windfall settles back to around $100 billion next year.

But even as container shipping companies report record profits, the cost of new containers is falling. Some suggest that this indicates a tipping point (Container ship charter rates are also cooling.) Meanwhile, thousands of containers are piling up in Rotterdam Port because of the sanctions on Russia.

Half a tonne of cocaine has been found in a container of coffee bean bags at a Nespresso factory in Switzerland. Europe is increasingly becoming a hub for the production and transhipment of cocaine. (Drugs have been turning up in commodity shipments for some time now.)

Louis Dreyfus has used a B30 biofuel-blended marine fuel for the first time to sail from LDC’s orange juice terminal in Ghent, Belgium, to LDC’s terminal in Santos, Brazil, and back again.

The World Health Organization has declared an “obesity epidemic” in Europe after finding that 59 per cent of the continent’s adults are overweight. Turkey and the UK are among Europe’s fattest countries. Meanwhile, a UK study has discovered that (as every parent already knew) adolescents don’t eat a healthy diet.

A NASA climate research scientist who has spent much of her career explaining how global food production must adapt to a changing climate won the World Food Prize.

Reuters has a long read on the start-ups looking to use Artificial Intelligence to improve supply chains.

And lastly, Bloomberg subscribers can listen to this podcast by Javier Blas explaining how commodity trading companies “really work.”

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Food and agriculture have been making the headlines, with Indonesia’s ban on palm exports adding fuel to the food price fire caused by Russia’s invasion of Ukraine.

Bloomberg and the FT explain the gravity of the situation, and Reuters explains the build-up to Indonesia’s export ban while warning that there is no plan B.

BloombergQuint has a long read on the fertiliser shortage, writing, “For the first time ever, farmers the world over — all at the same time — are testing the limits of how little chemical fertiliser they can apply without devastating their yields come harvest time. Early predictions are bleak.”

Other articles were less well-informed. The NY Times writes, “Prior to the war, Russia and Ukraine together exported over one-fourth of the world’s wheat.” (The world’s farmers produced 776 mln mt of wheat in 2020/21 and exported 202 mln mt, of which Ukraine and Russia exported 55 mln mt.)

Ukraine exported 567,991 mt of grain via rail through 27^th April and has shipped its first Panamax-sized bulk carrier of Ukrainian corn since the Russian invasion from Constanta in Romania. At the same time, Ukraine’s spring sowing campaign continues to progress, advancing by another 570,000 hectares, or four percentage points, between 21^st-25^th April.

Indonesia widened its vegoil export ban to crude palm oil, raising concerns over food protectionism. There is some discussion about how long the ban will last as the country may run out of storage capacity and restart exports as early as May. In the meantime, Indonesia’s navy has already seized two palm oil shipments. The ban has raised awareness of palm oil’s role in our diets.

The UK Food Standards Agency has ruled that, due to exceptional circumstances, products labelled as containing sunflower oil may now also include fully refined palm, coconut, or soybean oils without changes to the labels.

It’s an ill wind that blows nobody any good. Indonesian palm oil growers will suffer because of the ban, but Malaysian palm growers benefit from higher palm prices. Counter-intuitively, Malaysia has urged countries to reconsider their biofuel programmes despite recently committing to continue their own biofuel programme.

India’s wheat farmers and exporters benefit from higher wheat prices, and exports are already flowing. However, an unusually early record-shattering heatwave has reduced Indian wheat yields, raising questions about how much wheat the country can export. Meanwhile, the US President has asked Congress for $500 million to encourage US farmers to double-crop their fields and grow more wheat.

Bunge and ADM published better than expected results, and Bloomberg drew attention to the impact of higher volatility on traders’ profits. The news agency issued an opinion entitled “Commodity Traders Can’t Go ‘Unregulated’ anymore.” Cargill, however, worries about increased transport costs and argues that it is getting too expensive to export soybeans from Brazil.

Scientists are using satellites to monitor methane gas emissions from livestock farms. Meanwhile, cow masks that capture methane gas have won an award as part of the UK’s Prince of Wales’s Sustainable Markets Initiative. The devices could reduce methane emissions from cow burps by more than 50 per cent.

Finally, there are signs that port congestion is easing, with less than 40 ships waiting outside of the ports in Los Angeles and Long Beach, down from more than 100 earlier this year

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In a shock move, Indonesia, the world’s biggest palm oil producer, will ban all palm oil exports from 28^th April following a rise in the domestic price of cooking oil. The country’s finance minister admitted that the ban would hurt other countries but was necessary to prevent social unrest. Between them, Indonesia and Ukraine account for around 40 per cent of global vegoil exports. UK supermarkets have begun to limit vegoil purchases to a few bottles per customer.

Ukraine’s agriculture minister said 1.25 mln mt of grain and oilseeds were on commercial vessels blocked in Ukrainian seaports and may soon deteriorate. Ukraine’s state-owned railway halted the transport of some agricultural goods into Poland and Romania between the 16^th and 18^th of April, including grain and oilseeds. They gave no reason for the suspension.

Russia, meanwhile, continues to export grain, with almost 900,000 mt of wheat loaded in Russian ports so far this month, in line with the pace in March. Those shipments have spurred analysts to downgrade their outlook for EU wheat exports. The USDA has raised its estimate for Russian wheat exports to 33 million mt this season.

Ukraine’s agriculture ministry has said that as of 21^st April, farmers had planted crops on more than 3 million hectares, around 21 per cent of the ministry’s forecast for spring crops.

Egypt’s Supply Ministry is considering adding India to sixteen other wheat import origins. It said that Indian wheat purchases would depend on suppliers “offering competitive bids.”

There is some debate about the quantity and quality of Indian wheat exports this season, and the BBC wonders whether India can feed the world. India’s government expects a record 111 mln mt of wheat, but others worry that poor weather and a shortage of fertilisers will result in a disappointing result.

Heavy snow could delay spring wheat and canola planting in Canada. South America’s farmers could plant more spring wheat in September, but the area is coming out of severe drought (particularly in Argentina), and farmers worry about fertiliser availability.

For the moment, at least, Russian fertiliser is still finding its way to Brazil, with at least 24 vessels carrying almost 678,000 mt of Russian fertilisers expected to reach Brazil in the next few weeks. Fertiliser prices, meanwhile, have made record highs.

The International Rice Research Institute has predicted that reduced fertiliser use could lead to a 10 per cent drop in rice yields next season. A shortage of fertilisers may create a hunger crisis in Peru. The country’s rice, potato and corn production could fall as much as 40 per cent. The Rockefeller Foundation has called for debt relief and emergency aid to poorer nations to avert a “massive, immediate food crisis” in poorer countries.

Bloomberg looks for a silver lining to the cloud and wonders whether the rising price of fertilisers will lead to farmers using them more efficiently. (That may happen, but the Guardian warns that the Sri Lankan government ban (now reversed) on imports of fertiliser and other chemical farm inputs led to a collapse in food production. Some poorer sectors of the population face starvation.)

Bloomberg also argues that the world is too dependent on wheat, rice and corn. The news agency cites a recent study that governments should repurpose agriculture subsidies to support the growing of foods that benefit human health and the environment.

The war in Ukraine is pushing up freight rates, with about 80 to 100 ships, mostly bulk carriers, stuck in Ukrainian waters. More than 450 ships are waiting to dock to load or unload goods in Chinese ports because of the Covid lockdown in Shanghai. Container freight is also tight, with a fifth of the world fleet tied up in port congestion.

In the first quarter of 2022, China imported 30 per cent fewer soybeans from the US than last year.

Indonesia’s government has opened a corruption case linked to the issuance of palm oil export permits, naming four suspects, including a trade ministry official and palm oil company executives.

Cargill has stopped buying palm oil from Sime Darby after the US government said it had found indicators of forced labour in the Malaysian grower. Ferrero has told its suppliers not to purchase palm oil from Sime Darby. (The company says Ferrero is not one of their customers.)

Nestlé increased product prices by an average of 5.2 per cent in the first quarter of this year. Procter & Gamble increased prices by 5 per cent in the same period, while Heineken, the world’s second-largest brewer, increased prices by 5.2 per cent.

Dan Saladino, a BBC food journalist, has written a book called “Eating to Extinction: The World’s Rarest Foods and Why We Need to Save Them.” (The title says it all.)

The Guardian argues that our farmers and food systems are not ready for climate change and believes that seed banks are the last line of defence against a threatening global food crisis. However, help may also be at hand from rubisco, an ancient protein that could help crops cope with higher temperatures.

The FT reports on a new study that argues that asking people to become vegetarian will not be sufficient to curb GHG emissions. It suggests that a better solution lies in reducing methane emissions from livestock.

The Dallas Fed believes that commodity margin calls pose a macroeconomic risk. The FT published an opinion piece arguing the same thing. The newspaper says that the margin squeeze and higher commodity prices will favour the more prominent trading companies.

Wall Street banks’ commodities trading exposures are rising because of higher prices. Both Goldman Sachs and JPMorgan Chase reported an increase in their daily VAR.

The US president has said that the EPA (Environmental Protection Agency) will issue an emergency waiver permitting year-round sales of E15 gasoline, which contains 15 per cent ethanol.

Has the Covid pandemic and the war in Ukraine killed global supply chains?  Newsweek believes so.

Finally, if you want to know how an exiled Mexican president (who returned to office eleven times) invented chewing gum, this podcast is for you!

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The UN FAO Food Price Index averaged 159.3 points in March, up 12.6 per cent from February and the highest level since the inception of the index in 1990. The FAO said the war in Ukraine was primarily responsible for a 17.1 per cent rise in the price of grains, including wheat, oats, barley, and corn.

The NY Times wonders whether a Reddit investment community board and an ETF were behind those limit-up days in wheat. (Many in the trade think it unlikely.)

The war in Ukraine makes it tough to predict the country’s grain harvests. UkrAgroConsult forecasts corn production at 19 mln mt, less than half last year’s level. Barva Invest puts wheat production at 16.7 mln mt, about half last year. Maxigrain predicts sunflower output could fall 30 to 40 per cent below average.  APK-Inform estimates combined grains and oilseed output to halve to 53.3 mln mt, while the agribusiness Kernel Holding expects the country to produce a maximum of 60 mln mt.

The USDA warns that US food prices, already up 9 per cent on average for the year, will continue skyrocketing. The USDA marked down Ukraine’s corn exports by 4.5 mln mt to 23 mln mt and wheat exports by one mln mt. Ukraine’s railways are struggling with a backlog of grain wagons on the country’s western border as traders look for alternative export routes. Bloomberg writes that the war is shifting global trade flows. They show how in this short video.

In this photo essay, the Guardian explains that the lack of Ukrainian wheat exports is a disaster for Egypt’s poor. It is also a disaster in Afghanistan, already suffering its worst drought in 20 years. Coupled with the fallout from the Taliban’s takeover and the war with Ukraine, some 10 million Afghans — more than a quarter of the population — are near famine.

Meanwhile, Russia boosted wheat shipments by about 60 per cent in March, exporting about 1.7 mln mt, up from 1.1 mln mt shipped in March 2021. (March 2022 exports are still only about half of March 2020.)

Consultancy StoneX estimates Brazil’s planted wheat area will reach 3.4 million hectares this season, up 20.6 per cent from the previous year, with production forecast at 10 million mt. The estimate compares with Conab’s forecast of production at 7.9 million mt, up from last year’s 7.6 million mt, with the planted area at 2.7 million mt.   Conab expects wheat exports to reach a record 3.5 million mt.

The US winter wheat crop has emerged from dormancy in a miserable condition following a dry winter in crucial production states. The USDA estimates that only 30 per cent of US winter wheat was in good or excellent condition as of 3^rd April compared to 53 per cent at the same time last year.

The USDA Secretary has said that quickly converting CRP (Conservation Reserve Program) land into crop production is “clearly unfeasible.” He added that “a considerable proportion of currently enrolled CRP acres are in areas experiencing significant levels of drought. Even under non-drought scenarios… one acre coming out of CRP does not transfer into an acre of crop production, but closer to half that.”

The National Sunflower Association says that US farmers may plant twice as many additional acres with sunflowers as the USDA forecast.

Although India has harvested a record rapeseed-mustard crop, many farmers are holding back from selling to oilseed processors, hoping prices will rally further. Slow farmer selling, coupled with falling supplies of sunflower oil from Ukraine, could force the country to increase palm and soy oil imports.

DAP fertilizer prices tracked by DTN are now at the highest level in DTN’s historical data set. The price for phosphorus fertilizer increased 17 per cent compared to a month ago at an average price of $1,033/mt. The previous high was $984/mt set in November 2008. Bloomberg warns that the global fertilizer shortage is imperilling rice production in Peru, where the foodstuff is a staple for millions of people.

China’s farmers are under pressure, hit by the fertilizer shortage because of Covid lockdowns. One farmer said it was the most challenging planting season he had experienced. Congestion at Chinese ports (and elsewhere) is grid locking about 10 per cent of the global container-ship fleet.

The FT writes that EU farmers are also under pressure because of soaring fertilizer, feed and fuel costs. Swithun Still, a grain trader, told the newspaper, “It’s the four F’s — feed, fertilizer, fuel and financing,” adding, “The war in Ukraine has had a huge knock-on effect for farmers.”

Even so, the European Commission forecasts EU grain exports to rise by 14 per cent this year to 49 mln mt, including an additional 5.6 million mt of soft wheat. It expects total 2021/22 EU cereal production to reach 293.3 mln mt, a 4.3 per cent increase year-on-year.

Writing in the FT, an EU farmer argues that the agriculture sector must reinvent itself in the face of high energy and fertilizer costs.

In company news, Maersk is launching an airline, building on Star Air, a Danish air cargo company it already owns. The new company will be called Maersk Air Cargo and will take over operations from Star Air and add new planes. Observers are asking what Maersk will invest in next.

Three more members of the Cargill family have joined the ranks of the world’s 500 wealthiest people thanks to their stakes in Cargill Inc. According to the Bloomberg Billionaires Index, each has a net worth of $5.3 billion, up 20 per cent this year.

The Minneapolis Star Tribune finds that some big food and beverage companies have pushed up profit margins and prices while others are just passing along the increased cost of doing business.

In environmental news, the UN’s climate science panel, the IPCC, warns that companies and individuals need to do much more to slash greenhouse gas emissions from agriculture, farming, and forestry to slow down the pace of climate change. Meanwhile, Brazil has set a record for Amazon deforestation. From January to March, deforestation in the Brazilian Amazon rose 64 per cent from a year ago to 941 sq km.

Finally, if you have been wondering whether mushrooms talk to each other, one scientist believes they do. They may have a vocabulary of around 50 words.

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The Russian government will impose an export quota of 1.5 mln mt for sunflower oil and 700,000 mt for soymeal from 15^th April to 31^st August 2022.  It will impose a ban on the export of sunflower and rapeseed seeds from 1^st April to 31^st August 2022.

Dmitry Medvedev, Russia’s President from 2008 to 2012 and now deputy secretary of the country’s security council said, “We will only be supplying food and agriculture products to our friends. Fortunately, we have plenty of them, and they are not in Europe or North America at all.” He added that the “priority in the food supply is Russia’s domestic market and price control within it.”

Ukraine’s agriculture ministry reports that, as of 1^st April, the country’s farmers had planted 603,000 hectares, up from around 400,000 at the same time last year. It amounts to just under 4.5 per cent of the projected total area for main spring crops, which the ministry estimates at 13.4 million hectares, 3.5 million hectares less than last year.

APK-Inform estimates that Ukraine’s grain harvest could fall by 55 per cent to 38.9 mln mt in 2022 due to a sharp decrease in sowing and harvesting areas. The consultancy estimates wheat production at 14.865 mln mt, corn at 18.516 mln mt, and barley at 4.577 mln mt. It estimates sunflower production at 9.178 mln mt, down 45 per cent from last year. Fastmarkets looks at the various production scenarios here.

The head of the World Bank warned that Ukraine will need help to get fertiliser and seeds once Russia’s invasion is over. He also called for governments in advanced economies to reduce subsidies on biofuels and instead focus on targeting support to the poor.

ITC, India’s largest wheat exporter, expects India to export seven mln mt of wheat in FY 2022, up from 2.1 mln mt in FY 2021. The company expects FY 2023 exports to reach 21 mln mt. The government projects FY 2023 wheat exports to be around 12-15 million tonnes.

A delegation from Egypt is visiting India to facilitate wheat imports. The USDA estimates that Egypt’s wheat imports could fall to 11 million mt in the season that begins in July, the lowest in nine years. The agency also reduced its estimate for the current year to 12 million mt.

Wheat and corn prices continued their rollercoaster ride last week as hopes rose and then faded that Russia and Ukraine would reach a peace agreement.

China sold 546,015 mt of wheat at an auction of its state reserves on 23^rd March at an average selling price of 2,884 yuan ($453.05) per tonne.

The German farm association DBV has called for temporary adjustments to the EU’s Common Agricultural Policy to allow farmers to plant on fallow land. It also called for setting up national fertiliser reserves.

Two US senators have asked the US Department of Agriculture to allow farmers to plant crops on acres enrolled in the Conservation Reserve Program (CRP). The USDA is opposed to the idea.

The USDA expects farmers to plant more soybeans than corn for just the third time ever. The agency predicts planted area at 89.5 million acres of corn this season, down from 93.4 million last season. It expects soybean sowings to rise to a record 91 million acres, compared to industry estimates of 88.9 million. Wheat acres are expected to rise only 1 per cent.

High fertiliser prices are driving this switch to soybeans, with prices up between 50 and 125 per cent compared to a year ago.  The DAP Fertilizer Price Index hit a record high last week of $1,014/mt. Prices for nitrogen fertiliser ammonia in Tampa surged 43 per cent to $1,625/mt.

The US administration is considering temporarily removing restrictions on summer sales of E15 gasoline blends to lower fuel costs for motorists. Ethanol is currently cheaper than gasoline. The Counter has an excellent long-read on the food versus fuel debate, arguing that the war in Ukraine may mean we have to make the impossible choice between affordable food and greener fuel earlier than we had thought.

Food processing companies are replacing sunflower oil with palm, soybean, and rapeseed oil. The Jakarta Post writes that European consumers are dampening their objections to palm oil as sunflower oil prices rise.

The supermarket chain Iceland will temporarily use palm oil in its own-label food due to the high price of sunflower oil. Iceland committed to eliminating palm oil from its products in 2018. The company’s CEO said he is making the shift with “huge regret and would use sustainable palm oil as “a last resort and a strictly temporary measure.”

High vegetable oil prices are resulting in demand destruction, with food processors and restaurants switching from fried to steamed food.

But high prices are destroying demand not just for vegetable oil. An index tracking Mexican avocado prices is up 81 per cent this year to 760 pesos ($38) per 9-kilogram box, the highest since 1998.  A slice of pizza in New York now costs more than a subway ride for the first time since the 1980s.

Food prices are rising fast in Russia. Most of the ingredients needed to make borscht saw double-digit price increases in a single week, with onions soaring by more than 18 per cent and cabbage by nearly 16 per cent.

A study published in Nature Food raises concerns over the ability of Southeast Asia to retain its title as a major rice supplier to the world. Indonesia and the Philippines are already struggling to produce enough rice for their own needs.

Brazil’s largest coffee exporter sees its arabica-bean shipments rising to a record this year as the logistic snarls that hampered flows last year ease. The cooperative Cooxupe expects to increase exports by 20 per cent to 5.9 million bags in 2022 versus 4.9 million bags in 2021. The cooperative expects a similar harvest as last year but plans to raise shipments using stockpiles and third-party coffee.

In environmental news, the Intergovernmental Panel on Climate Change (IPCC) has released its 6^th report with recommendations on how the agricultural sector could adapt.

The EU has “pressed the pause button” on its sustainable agricultural policy, the Farm to Fork strategy, to ensure that food security is “guaranteed for the European neighbourhood” during the war. However, the EU’s long-term ambition for the sector remains unchanged.

The NGO Reporter Brasil claims that McDonald’s is unknowingly buying beef from illegally cleared ranches in the Pantanal and the Amazon. It says that livestock is shuffled between farms to hide their true origin.

Maersk has warned that the semi-lockdown in Shanghai will increase transport costs and delay shipments.

Finally, in company news, Bloomberg writes how Sucden’s main shareholder is transferring shares to his sons as he passes the company on to a third generation.

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Ukraine’s agriculture minister has said Ukraine’s ability to export grains was getting worse by the day and would only improve if the war with Russia ended. The country faces a possible grain revenue loss of $6 billion as the blockade of its ports prevents it from shipping wheat and corn earmarked for export by June. Unfortunately, damage to port facilities may mean that it will take a long time before shipments recover.

The fighting could lead to Ukraine planting only half of its usual sunflower crop.  Some analysts expect the country to sow 3.5 to 4 million hectares of the oilseed this spring, down from 6.8 million last year. Others are even more pessimistic.

US farmers have asked the USDA to allow them to plant on 4 million acres of “prime farmland” currently enrolled in the Farm Service Agency’s Conservation Reserve Program (CRP) to help compensate for the loss of Ukrainian corn, wheat and sunflower oil.

The EU has proposed a 1.5-billion-euro funding package for farmers to plant crops on almost 4 million hectares of fallow land. Ireland’s government has already approved a payment of €400 per hectare to encourage farmers to grow barley, wheat, and oats. Meanwhile, an environmental lobby group has called for the EU to suspend its mandates for crop-based biofuels.

The European Commission has delayed the publication of its proposals on sustainable farming as the Ukraine crisis does not allow the “political space” for a proper discussion now.

The head of the WTO has warned countries against restricting food exports, arguing that it will only exacerbate the situation. She said that countries with surplus vegetable oils and grains stocks should release them on world markets.

When Vietnam, India, China, and Cambodia imposed export bans on rice in 2008, prices soared to about $1,100 per tonne from about $480. Rice currently trades at about $405 per tonne, down from $410 before Russia invaded Ukraine. Bloomberg argues that rice prices need to stay where they are if the world is to avoid a full-blown food emergency.

India could limit sugar exports to 8 million tonnes this season to prevent a surge in domestic prices. Mills have so far signed contracts to export 7 million tonnes.

China’s agriculture minister has said that “China faces big difficulties in food production because of the unusual floods last autumn.”

Nestle will stop selling a wide range of brands in Russia after the Ukrainian President criticised the company. Nestlé said that the products make up the “vast majority of volume and sales” Russia. The FT writes that the war in Ukraine presents Nestlé with some difficult choices. The Minnesota Reformer feels that “Cargill should pull out of Russia.”

Spiking commodity prices and subsequent margin calls leave some trading firms short of liquidity and searching for additional financing. At last week’s FT Commodity Conference, traders warned that financial stress could lead to consolidation in the sector.

In an article on rising fertiliser prices, the FT calls for a reduction in financial speculation in commodities, arguing that derivatives trading plays a significant role in food and fuel inflation. However, in this article on the merits of investing in agricultural commodities, the newspaper writes that after the last grain price surge in 2007-8, a report from the FAO found: “Available empirical evidence does not support claims that non-commercial traders have increased the volatility of grain prices.”

The CEO of Yara, a major Norwegian fertiliser producer, told the WSJ, “We will have a food crisis. It’s a question of how large.” Brazilian farmers have been caught off guard by soaring fertiliser prices, with only 28 per cent of their needs for the second half of this year bought by the end of February.

The world’s small scale coffee farmers are already facing a “crisis” because of the fertiliser shortage. Meanwhile, a container shortage is leading some Brazilian coffee producers to export their beans in bags in break-bulk vessels.

Nigeria’s Dangote Group has opened a $2.5 billion fertiliser plant at the Lekki Free Zone in Lagos State. The plant is designed to produce 3 million tonnes of urea per year and supply all the major markets in sub-Saharan Africa. The company will also export to Brazil, the US, India, and Mexico.

Olam Group has agreed to sell 35.4 per cent of Olam Agri Holdings to Saudi Agricultural and Livestock Investment Co. (SALIC) for $1.24 billion. The deal values Olam Agri at $3.5 billion.

ADQ, an Abu Dhabi wealth fund, is acquiring Egypt state-held stakes in Abou Kir Fertilizers & Chemical Industries, Misr Fertilizers Production Co. and Alexandria Container & Cargo Handling Co. as part of a roughly $2 billion investment in the country.

Qatar and the Gates Foundation will invest up to $200 million over the next two years to help farmers adapt to climate change. Recent climate models warn that climate change will result in a dramatic drop in agricultural yields.

Unilever is piloting Green Token, SAP blockchain technology, to increase transparency in their palm oil supply chain. The company has already used the technology to source 188,000 tonnes of palm oil from Indonesia.

Finally, this writer argues that we should stop growing wheat and eat beef instead. (Well, everyone is entitled to their opinion.)

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The UN has warned that Russia’s invasion of Ukraine could trigger global famine, as Moscow’s Black Sea blockade delays crucial grain exports, stoking fears of a deepening hunger crisis in countries such as Yemen and Ethiopia.

The crisis is already leading to panic buying in Europe, with shoppers emptying shelves of pasta and flour.

Prices of unsubsidised bread in Egypt have increased by 25 per cent in the last three weeks, provoking hunger and fears of social unrest. Wheat shortages led to unrest in 2008 when the leading chant of the uprising was “Bread, freedom and social justice”.

India hopes to fill some of the global wheat shortage. Exports increased to 6.12 million tonnes last year from 1.12 million tonnes a year earlier. The government recently introduced incentives that could result in 10 million tonnes of wheat exported this season.

The surge in wheat and corn prices is boosting demand for low-grade rice for animal feed in Asia. Chinese buyers are looking to buy extra volumes of broken rice to fatten hogs and other animals. China is meanwhile ramping up corn purchases from the US. China’s Global Times quotes Chinese experts saying that the country’s domestic supply of soybeans is guaranteed despite the events in the international market. The USDA, meanwhile, estimates that China will import a record 100 mln mt of soybeans in 2022/23.

Russia has temporarily banned grain exports to ex-Soviet countries until the end of June – and most sugar exports until the end of August – but will keep providing special export licences to traders within its current quota. The country still has 6 million to 6.5 mln mt of wheat to export under the quota, and the various announcements caused some confusion in the market.

The Russian invasion leaves Ukraine facing its most challenging planting campaign in history, although farmers in the west of the country still hope to increase planted area. Ukraine’s agriculture exporters are turning to barter after multinational traders evacuated their staff and stopped making payments.

Argentina has halted the registration of export sales of soy oil and meal ahead of a likely increase in export taxes.

Indonesia has removed restrictions on palm oil export volumes but has raised the maximum export levy to $375 a tonne, up from $175 per tonne previously.

Fertiliser prices continue to surge, with the Green Markets North American Fertilizer Index hitting a new high. Prices for urea in New Orleans also reached record levels while an index for potash in Brazil rocketed a record 34 per cent.

The massive fertiliser rally has created a rift between the world’s agricultural superpowers over whether Russian supplies should be sanctioned. Brazil argues for keeping crop nutrients sanction-free, while the US prefers increasing the pressure on Russia. Russia accounted for almost a fifth of the world’s fertiliser exports in 2021.

India is boosting fertiliser imports from Canada and Israel to ensure supplies. The country’s fertiliser minister told Reuters, “We need about 30 mln mt of fertilisers, and arrangements are in place.”

An editorial in the Bangkok Post calls for Thailand’s government to reduce its fertiliser dependence and shift to organic farming.

The Canadian fertiliser company Nutrien will boost potash production by about one mln mt in 2022 to 15 mln mt, with most of the additional volume coming in the second half of the year. The company said it couldn’t produce more than that in 2022 — even if the market needed it.

Bayer, a leading seed and crop treatment supplier is considering halting the sale of farming inputs to Russia. The company has already supplied the country for this year.

A new paper argues that parts of the American West may be entering a “perpetual drought.” However, a wetter than usual spring in the northern US Plains and Canadian Prairies could help the wheat crop there. The lingering La Nina may prolong and exacerbate the drought in the US Southern Plains, where the country’s hard red winter wheat is grown. Some 60 per cent of the region is in the grips of drought.

After Europe’s energy traders appealed to governments for financial assistance, Bloomberg has run a series of articles wondering whether rising commodity prices will lead to a financial meltdown. The agency asks whether commodity traders are too big to fall (this blog argues that they are not) and questions whether governments should help traders finance their margin calls. The news agency argues that trading companies should first tap private sources, including their shareholders. A lack of liquidity in the primary commodity markets makes the situation even more challenging.

Ukrainian Prime Minister has urged Nestle to rethink the company’s decision to continue some operations in Russia. Nestle has suspended shipments of non-essential products but is still supplying necessities such as baby and pet food.

Maersk has halted new container bookings to and from Russia but still has vessels calling at Russian ports to deliver containers booked before the invasion and pick up around 50,000 containers stranded in Russia. Maersk’s CEO told Bloomberg that exiting Russia will be “expensive” but makes sense because the country’s economy won’t grow “for a very long time.” He added, “It’s a decision based on morals, but it’s also a financially sound decision in the longer term.”

Maersk has joined the Climate Pledge, an environmental initiative whose signatories commit to fully decarbonise their operations by 2040. Maersk is the first large shipping company to join the programme.

In other company news, Louis Dreyfus has created a new plant proteins business as part of their plans to move further downstream and diversify revenue through more value-added products.

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We will all soon feel the “enormous impact” of Russia’s war on Ukraine with sharply higher food prices and significant disruption to agricultural supply chains. The situation is tipping into a full-blown crisis, potentially outstripping the Covid pandemic’s blow and pushing millions more into hunger.

The head of the World Food Programme agrees that the conflict could have a catastrophic impact on the world’s poorest, putting more people at risk of starvation worldwide. He added that “the bullets and bombs in Ukraine could take the global hunger crisis to levels beyond anything we’ve seen before.”

Goldman Sachs has said the world’s farmers have little spare capacity to increase acreage while crop nutrients are too expensive to increase yields.

The FT argues that the US farmers will be especially limited, writing, “After a poor harvest last year, domestic wheat stocks are at their lowest level in 14 years. Farmers have already seeded 34.4mn acres with winter wheat, which accounts for the majority of US production, and there is a worsening drought in important winter wheat states such as Kansas.”

China’s agriculture minister has said that China’s winter wheat crop could be the “worst in history.” He explained that heavy rainfall last year delayed the planting of about one-third of the regular wheat acreage.

AgResource has reduced its estimate for Brazilian soybean production to 119.5 mln mt. The company said that when you factor in potential losses in Argentina and Paraguay, 40 mln mt of soybeans could be lost due to poor weather.

Russia’s Prime Minister has said that he will prioritize grain supplies to domestic bakeries over export markets. The Russian government is already considering banning all grain exports to the Eurasian Economic Union until September.

Ukraine’s government has banned exports of rye, barley, buckwheat, millet, sugar, salt, and meat until the end of this year. Earlier, the country had introduced export licences for wheat, corn and sunflower oil, poultry, and eggs.

Egypt has banned the export of essential staples, including flour, lentils, wheat, pasta and fava beans. The government has meanwhile blamed greedy traders for rising food prices.

Indonesia has said it will further restrict palm oil exports to increase domestic supplies. LMC International has described cooking oils as facing a perfect storm, with as much as 60 per cent of sunflower oil exports from the Black Sea region delayed due to the war.

The UN FAO has warned that “before enacting any measures to secure food supply, governments must consider their potential effects on international markets.” The FAO added that “restrictions could help to resolve individual country food security challenges in the short term, but they would drive up prices on global markets.”

China’s President Xi Jinping has said that China can no longer rely on international markets to ensure food security and should focus on domestic production.

Asia’s preference for rice over wheat could limit the fallout from reduced Black Sea wheat exports. Food inflation is relatively contained in Asia, thanks to the popularity of rice and falling pork prices.

Cargill and ADM are scaling back their business activities in Russia but will continue to operate “essential” food facilities there. In a statement, Cargill said, “Food is a basic human right and should never be used as a weapon.”

Skyrocketing prices force physical commodities trading houses to seek additional financing for margin calls on their hedge positions.

Nestle and Mondelez have followed Procter & Gamble and Unilever in halting investment in Russia. However, the four companies will continue providing essentials to maintain “continuity” of the Russian food supply.

Higher fuel prices and increased transport costs could add to the already sharp rise in world coffee prices.

In shipping, Maersk is looking to divest its minority interest in Russia’s largest terminal operator.

Meanwhile, the war may lead to a global crew shortage as Ukrainians and Russians account for nearly 15 per cent of the industry’s 1.9 million seafarers and a high proportion of its officers and ranked crew. Ukraine has conscripted men under 60 and forbidden them to leave the country. Some 140 ships and 1,000 workers are trapped in Ukraine waters, although Russia appears to be letting some ships carrying grains leave the Azov Sea.

Consolidation continues in the container-shipping sector, with Hapag-Lloyd acquiring the container liner business of Deutsche Afrika-Linien (DAL).

The Brazilian government has presented a National Fertilizer Plan to reduce the country’s dependency on imports from 85 per cent of its demand to 45 per cent. Brazil is the world’s fourth-biggest importer of fertilizer.

Norway’s Yara, one of the world’s largest fertilizer makers, is curtailing ammonia and urea output in Italy and France due to the surge in natural gas prices.

In environmental news, new research finds that three-quarters of the Amazon rainforest may be speeding toward a “tipping point” that could transform it into a relatively dry savanna.

A new report estimates that in the US in 2018, around 235 million pounds of herbicides and insecticides were used on corn and soy crops destined for factory-farmed animals.

The Guardian writes that the US beef industry has escaped relatively unscathed from the US President’s pledge to cut methane gas emissions by 30 per cent by 2030.

Reuters reports that US ethanol producers are betting on carbon capture and storage (CCS) technology to lower their greenhouse gas emissions.

Maersk wants to jump-start the green methanol market to help them ditch fossil fuels. The company could buy at least 730,000 tons of methanol per year by 2025.

Bloomberg Green has an excellent video on how technology could help the global shipping industry ‘go green’.

Finally, Visual Capitalist has a good piece on the enormous scale of US food waste.

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Russia’s invasion of Ukraine has created “the shock of a lifetime” in global commodity markets, with the fastest increase in prices since the 1960s or 1970s. Wheat (at the time of writing) is up 40 per cent on the week. One analyst called it “the modern-day equivalent to the 1974 Great Grain Robbery.”

Russian forces have closed off Black Sea shipments, leaving buyers scrambling for alternative supplies. Canada can’t help because drought reduced its grain inventories by 38 per cent from a year earlier. However, India could export a record 7 million tonnes of wheat in 2021-22.

The US Agriculture Secretary said it’s premature to project what will happen to agricultural exports from the Black Sea, but “the biggest areas of concern would be the Middle East and North Africa that do need those products to be able to feed their people.”

Chinese buyers bought about 20 cargoes of American soybeans and about ten cargoes of corn this week after the Chinese government encouraged state-owned companies to search for oil and gas, iron ore, barley, and corn.

The FT has written about “the weaponization of commodity trading.” A former US official told the newspaper, “Commodities have been weaponized for a long, long time. It was always a question of when does a state pull the trigger.”

Farmers worldwide are scrambling to lock in fertilizer supplies as prices once again head higher. Canada’s Nutrien, the world’s biggest fertilizer producer, said that the war could result in prolonged disruptions to the global supply of potash and nitrogen crop nutrients. India, meanwhile, has set up a rupee-clearing account to pay for urea imports from Iran.

Palm oil prices have also shot up as markets scramble to find alternatives to shipments of sunflower oil stuck in Black Sea ports. India has asked Indonesia to increase palm oil shipments to compensate for the loss of sunflower oil supplies. Meanwhile, Palm oil has become the most expensive of the four major edible oils for the first time.

Since last December, the USDA has progressively lowered its forecast for soybean production in Brazil, Argentina and Paraguay by more than 18 million tonnes. It now expects the smallest crop since 2018/19. However, heavy rains in Argentina’s farm belt – and expectations of more to come – are alleviating fears about a prolonged drought. There is even concern that there may be too much rain.

Societe Generale and Credit Suisse have stopped financing commodities trading from Russia. (The two banks are key financiers to commodity trade houses.) Commodity trading companies have told Reuters that Russian commodity flows will remain severely disrupted until clarity is established over what is sanctioned and what is exempted.

Nestlé has reopened its factories and warehouses in central and western Ukraine to ensure essential food and drink deliveries. The Swiss-based group has three factories and around 5,000 employees in Ukraine.

Although sanctions don’t yet target Russian energy exports or (non-military) containerized goods, many tanker owners and container liner operators are pre-emptively pulling out of Russia. Moller-Maersk, Ocean Network Express, MSC, and Hapag Lloyd have temporarily halted all container shipping to and from Russia.

Shipping lines are likely to come under increased scrutiny from the US Department of Transportation and the US Department of Justice over rising rates. However, the Federal Maritime Commission said that, for now, there is no evidence of wrongdoing.

Progress is being made to build the world´s first large-scale commercial e-Methanol production facility in time for the delivery of Maersk’s large dual-fuel methanol ready containerships in the second half of 2023.

Chevron has agreed to buy green diesel producer Renewable Energy Group for $3.1 billion. Renewable is a large producer of biodiesel and renewable diesel. Meanwhile, Marathon Petroleum Corp will form a joint venture with Finnish refiner Neste for its Martinez renewable fuels project in California. Neste will contribute $1 billion to the project.

Trade associations representing the world’s major trading firms have warned the European Commission that their plan to prevent commodities linked to deforestation from entering the EU market is “technically and effectively not feasible.”

A study published in Nature Sustainability shows that carbon loss from tropical deforestation in the last two decades has doubled and continues to rise, mainly driven by agricultural expansion.

Brazil’s cattle ranchers are trying to reduce methane emissions through “intensification” – keeping 15 animals per hectare, instead of fewer than one – and slaughtering the animals at 18 rather than 30 months.

Finally, in a special report on sustainable agriculture, the FT writes about the adverse effects of climate change and higher temperatures on farmworkers.

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