Miller Magazine Issue: 125 May 2020

104 MARKET ANALYSIS MILLER / MAY 2020 Not only do people behave differently in isolation. Corn and wheat behaved completely differently during the qua- rantine. And this is understandable, because wheat is prima- rily food, and corn is a source of ethanol and animal feed. But let's start with the most sensational event of the past month. The recent one-day WTI negative value is associ- ated with the imposition of several factors. Firstly, oil is in overproduction, and demand is in no hurry to recover. For example, aircraft began to fly 70% less, and this is not the only source of falling demand for fuel. This led to an incre- ase in stocks, and now it is more profitable to sell storage facilities than oil itself. Secondly, the deal to reduce production began to be imp- lemented only on May 1 . On April 20, WTI futures were preparing for expiration, and it, unlike Brent, was deliverab- le. No one wanted to buy, and the story is over so that the May crude pays the seller. On Tuesday, new contracts were already trading in a relatively normal price range, although some traders, in an effort to cover yesterday’s losses, began to sell part of new contracts, which supported a downtrend. Third, Saudi Arabia continuing la price war despite the deal, arranging the sale and forcing competitors to Europe- an and Asian markets. Physical contracts are traded ovalis of $ 11-13 per barrel. I hasten to reassure you: from this week they stopped doing it. With a decrease in production amid weak demand, prices will be kept until storage space is vacated. That is not for one week. By and large, even in the most optimistic scenari- os, demand will recover closer to the third quarter of 2020, and the supply must be further reduced so that oil returns at least to the level of the end of 2019. WHEAT The governments of almost all countries in an attempt to create stocks reminded people who buy all the products in supermarkets. Empty shelves only add panic, and people, giving in to the hype, are ready to pay any price, if only to sleep peacefully. Wheat, as the main grain consumed by man (not counting rice), was actively growing in price, exporters were first satisfied, but then they themselves exp- ressed concern: What if they themselves are not enough? Russia limits the export of wheat (and other grain) outsi- de the EAEU for April-June at 7mm. Exporters did not use the quota - there is simply no such transshipment capa- city in the country, they booked it. Those who didn’t guess or didn’t have time to do it remained dissatisfied and tried to complain to the Ministry. There were even ideas derive from the quota of wheat and barley, called on the govern- ment remained adamant. In parallel with this, Kazakhstan is increasing the export quota for May to 250 kmT. Traders suggest that 1) it will be exported through the EAEU countries, there is no ban on export inside, nor is the- re a ban on re-export from participating countries and 2) if you declared but did not select a quota, then it is returned to the calculator. Ukrainian exporters are obedient, wheat goes slowly, fitting into the estimated norms. Amid the stress, because of the desire to replenish the stocks of importers and the uncertainty with quotas, the market grew rapidly, but ever- ything fell into place. The potential restriction of Ukrainian corn exports at 29.3 is unjustified, and more like an attempt to create a stir simi- lar to the wheat story. But the ministry listened to the voice of the market and rejected this idea. The "oil in the fire" of wheat was added by the absence of rain in Europe and the Black Sea region. The threat of a significant reduction in yield was worse than the not yet sown, but already potentially large numbers of Argentine or Australian wheat. But already at the beginning of May, buyers were “full”. Rains that have already passed in Europe, the Black Sea re- gion and Brazil, and last a few more days, reduce the like- lihood of crop loss due to drought. Warm and dry weather in Argentina contributes to the harvest of soybeans and corn, and in the United States - activates sowing of these crops. In the north and in the center of Europe, heavy rainfall occurred, which significantly improved the provision of mo- isture to winter and spring crops. During the week, mode- rate rains will be here. Also, the southeastern part of Europe and Ukraine was covered by a cyclone that brought 10- 30 mm of rainfall, which improved the condition of winter wheat crops. It will rain throughout Ukraine, in the central regions of Russia, in particular, in the Stavropol and Kras- nodar Territories, where there is a moisture deficit in winter crops. In the south of Odessa region, part of winter and spring crops died due to lack of rainfall, and rains will no longer be able to restore crops. Moderate rains will improve the condition of winter wheat crops, which have stopped their development, and will contribute to the emergence of spring crops, sowing of which is almost complete. Traders are worried about the many-week lack of rainfall in Brazil, as a result of which the crops of the second crop are affected. This week, weather forecasters promise mode- rate, in some places heavy precipitation, which will improve the conditions for pollination and filling of corn. At the same time, there is too much corn in the world, and it will not give substantial support to prices. In Argentina, dry and warm weather will replace long ra- infall next week, which will restore the harvest of soybeans and corn, whose exports have slowed due to low water le- vels in the Parana River. In Western Australia, rainfall that has already passed and will continue will improve soil moisture and winter wheat