Concerns Overshadow Grain Corridor Deal Optimism
Talks of extending the grain corridor deal are ongoing at the time of writing and are likely to continue into the week beginning 13th March 2023. However, without a deal being concluded, grain and oilseed prices appear to be moving lower, with Euronext Rapeseed shedding 6% week-on-week (w-o-w), largely because players in those markets are confident of the grain corridor’s extension past its current run-out date on 18-March. Yet, the demands of both sides are currently very disparate and little progress has been made in talks so far. So, unless some serious concessions are made by both sides, a deal is anything but certain. The deal is a critical watchpoint, because if parts of the market are trading as if the deal is already signed and there is a delay or the deal does end, then it may mean that there is a scramble to reposition from market players. This scramble to reposition and gain supplies would likely cause prices to increase from current levels, as rapeseed oil is a key alternative to sunflower, for example.
A trader commented to Mintec, “the market is playing a dangerous game. I am an optimist at heart and the deal may very well be extended, but many players are leaving themselves completely exposed if it does go sideways. No war price premium is being included which, to be honest, I cannot understand. It seems likely that this war goes on for many years and some seem to be concluding that if the grain corridor deal is signed, that means the war is over, which is not the case.
Turning to sunflower oil Mintec has learned that very little buying is taking place, particularly into the H2 2023 season and into the 2024 season. This lack of long forward buying is unusual, as some players fix deliveries much longer term, especially during periods of volatility. The fact that this is not happening may mean that like rapeseed and some of the grains, players within the market are nearly certain that the grain corridor deal is going to be extended. Alternatively, a lack of long-forward buying may be because some players are unaware of, or have not yet calculated, the low production ramifications of sunflower seed estimates from Ukraine this coming season. Market players have estimated the new crop production range 20-30% down from the last crop, which was 10 million metric tonnes. Due to the reduced size of the crop, this year's carry is expected to be very low into next season which could mean that the raw production value is close to the actual available supply from Ukraine. If realised, this would likely be bullish on sunflower oil and could lead other vegetable oils higher too according to market players.
A Black Sea trader told Mintec, “too many players are focused on the here and now. We have ample supplies of sunflower seed and oil right now, that is true. However, things are very volatile and the grain corridor deal uncertainty is one thing, but also the amount Ukraine is going to plant in April. The planted acres are expected to be low and that is going to cause a significant lack of supply come harvest toward the end of 2023. This is very bullish and I don’t think I have heard another single person talk about it.”