Alistair MacDonald, William Mauldin and Ann M. Simmons reported in today’s Wall Street Journal that, “Russia is open to easing its blockade of Ukraine’s ports along the Black Sea if sanctions on Moscow are lifted, a Russian official said Wednesday, a move that, if it went ahead, could increase grain exports and help relieve rising food inflation and shortages.”
But a Ukrainian official on Wednesday questioned whether Moscow could be trusted and urged world leaders to instead focus on ending the war and strengthening sanctions. A senior U.K. official also rejected the idea of lifting sanctions, a potential early indication of where other Western governments might fall.
The Journal article indicted that, “State Department spokesman Ned Price said, ‘We certainly won’t lift our sanctions in response to empty promises, and we’ve heard empty promises before from the Russian Federation. Our nonfood sanctions will remain in place until Putin stops his brutal war.’”
MacDonald, Mauldin and Simmons explained that, “Elsewhere, Poland and Lithuania say they will make space available at seaports, while Warsaw has suggested sending trucks to help bring the wheat out of Ukraine. The European Union is looking at ways to streamline the movement of food across Ukraine’s borders. Kyiv itself wants to invest in new border posts and expand its roads to cope with the influx of grain cargoes.
“The current routes out of Ukraine, which mainly involve putting grain on trucks and trains to be sent to Romanian and Baltic ports, are sometimes subject to weeks of delays and border queues as long as 9 miles. The increased journey time is adding to the costs for Ukraine’s cash-strapped farmers and making grains even more expensive.”
Reuters writer Sabine Siebold reported yesterday that, “Ukraine’s Foreign Minister Dmytro Kuleba said on Wednesday that Russia was trying to ‘blackmail‘ the international community by raising the possibility of an offer to unblock Black Sea ports in return for a relaxation of sanctions.”
And Reuters News reported today that, “British foreign minister Liz Truss accused Russian President Vladimir Putin of holding the world to ransom over food, responding to a question about whether she supported lifting sanctions in exchange for grain exports from Ukraine.”
Meanwhile, Bloomberg writer Natalia Drozdiak reported yesterday that, “The Netherlands would consider joining an alliance to send warships to escort grain supplies stuck in Ukrainian ports but would need assurances from Russia and, ideally, involvement from Turkey, according to the Dutch defense minister.
“Estonia and Lithuania have been calling to establish a coalition of the willing to send naval escorts for grain freighters, as European officials decry Russia’s effective blockade of Ukrainian ports that’s left Kyiv struggling to get grain shipments out.”
With respect to Turkey, Reuters writer Orhan Coskun reported today that,
Ankara is in negotiations with Moscow and Kyiv to open a corridor via Turkey for grain exports from Ukraine, a senior Turkish official told Reuters on Thursday.
The Reuters article stated that, “Ukraine’s Black Sea ports have been blocked since Russia invaded in February and more than 20 million tonnes of grain are stuck in silos there. Russia and Ukraine account for nearly a third of global wheat supplies and the lack of exports from Ukraine is contributing to a growing global food crisis.
“‘Turkey is negotiating with both Russia and Ukraine for the export of grains from Ukraine,’ the official said, requesting anonymity.
“‘With a corridor to be opened from Turkey, there was a demand for this grain to reach their targeted markets. Negotiations are still ongoing,’ the person added.”
Still, Bloomberg writers Andrea Dudik and Rosalind Mathieson reported yesterday that, “Resuming Ukrainian grain shipments will be time consuming given challenges that include mine-clearing in Black Sea ports and the need for cooperation from the very country that kicked off the war, Lithuanian President Gitanas Nauseda said.”
And more broadly on the ongoing impacts of the Russian invasion, Jason Douglas, Jon Emont and Vibhuti Agarwal reported in today’s Wall Street Journal that, “Countries around the world have enacted a wave of export curbs on food since the start of the Ukraine war, a trend that economists say risks aggravating shortages and global food-price inflation.
“On nearly every continent, nations have put new restrictions and bans on products ranging from wheat, corn and edible oils to beans, lentils and sugar. Lebanon has even banned the export of ice cream and beer.
“The cascade of restrictions marks another setback for unfettered global trade, which has been dented in recent years by tariff and regulatory spats between the U.S. and China and moves by countries to safeguard supplies of medical equipment and vaccines during the coronavirus pandemic.”
Today’s Journal article added that, “For governments, limiting food exports is a way to soothe public anger over rising prices and beef up domestic supplies, particularly after Russia’s invasion of Ukraine disrupted global food markets and raised prices for many commodities. Both countries are major exporters of grains and vegetable oils.
“Economists, though, say experience has shown that restrictions on food exports inevitably push global prices up further as importers buy what they can from reduced supplies. While governments may get a brief respite from surging prices, they are rarely significant or long lasting, usually because farmers respond by limiting production or switching to other crops that attract better prices at home and abroad.”
Potential 2022 Fall Prices for Corn and Soybeans Based on History , By Gary Schnitkey
Corn and soybean prices for 2022 fall delivery are at high levels. During the first two weeks in May, fall delivery bids in central Illinois averaged $7.39 per bushel for corn and $14.52 for soybeans. Significant changes in prices going into fall are possible. History suggests that there is a 5% chance that cash prices for corn in October will be below $4.60 per bushel. There is a 5% chance of cash prices below $10.56 per bushel for soybeans. Conversely, there also is a chance of higher prices. There is a 5% chance that October cash prices exceed $10.50 per bushel for corn and $18.49 for soybeans.
Framework Used to Evaluate Possible Price Changes
Our objective is to present possible fall prices for corn and soybeans. To do this, we evaluated changes in both futures and cash prices from May to October. The analysis provides a perspective on both futures and cash markets. While futures and cash prices are highly correlated, cash prices tend to move down more in years of falling prices. Analyses are first presented for corn in the following section and then for soybeans in the second.
Corn
Table 1 shows historical prices from 2001 to 2021. The panel labeled “May” gives average prices during the month of May and includes three columns. The “Dec CME” column shows the average settlement prices of the December Chicago Mercantile Exchange (CME) contract. From 2001 to 2021, futures prices averaged $4.00 per bushel. For the first two weeks of May in 2022, the December contract has averaged $7.39, well above the historical averages. The $7.39 average was the highest of all prices since 2001. In May, the fall delivery price for central Illinois averaged $3.74 per bushel from 2001 to 2021 as shown in the “Fall Delivery Bid” column. The “Basis” column shows the difference between the futures and fall delivery price averaged -$.26 per bushel. There is variably in the basis, ranging from -$.50 in 2008 to -$.13 in 2012. In 2022, the basis is -$.29 per bushel.
The panel labeled “October” give an average of daily prices during October and includes three columns. For October, the December contract averaged $3.82 per bushel from 2001 to 2021 as shown in the “Dec CME” column. The “Cash bid” column gives the delivery price for grain, while the “Basis” column gives the difference between the CME and cash bid. From 2001 to 2021, the cash bid average was $3.64 per bushel, $.19 below the average December futures contract. Note that the average May basis of -$.26 per bushel is more negative than the October basis of -$.19 per bushel. A more negative basis in May likely is due to a risk premium built into fall delivery bids.
The final panel, “Change”, includes two columns showing changes in both futures and cash prices. Over time, the change in the December contract from May to October averaged -4%. The change in May to October cash prices average -2%.
Historical price changes shown in the final two columns of Table 1 are used to calculate the probabilities of low and high prices. These probabilities are calculated by ordering the changes from low to high and then calculating price change percentiles. Results are shown in Table 2. For a .05 probability, the futures price change is -31%. From 2001 to 2021, 5% (or 2 out of 20) of the changes in future prices were at or below -31% (i.e., -34% in 2008 and -31% in 2004). In 5% of years, we would expect price to decrease by at least -31%. From the current $7.39 level, the resulting October futures price would be $5.14 per bushel ($7.39 x (1 – .31).
For cash prices, the probabilities in Table 2 suggest:
There also is considerable upside potential. For example, in Table 2, the price that corresponds to a 0.75 probability is $7.59 for cash corn. In other words, there is a 25% chance of prices being above $7.59 in October.
The .95 probability in Table 2 suggest a 5% chance of cash prices exceeding $10.50 per bushel in October.
Soybean
Historic soybean prices are shown in Table 3. The November CME futures contract is used for soybeans. Highlights are:
The probability of soybean price changes are shown in Table 4. For cash prices:
Higher prices also are possible. Historic price changes suggest that cash prices could exceed $18.49 with a 5% probability.
Summary
History suggests that large changes in prices are possible from May to October. We quantified possible price chances using history as a guide.