Miller Magazine Issue: 142 October 2021

100 MARKET ANALYSIS MILLER / OCTOber 2021 investors and affecting the value of certain assets. Although, of course, few people believe that the country will default. From politicians to Wall Street bankers, there are warnings about the risks of dragging out debt negotiations. Jamie Di- mon, chief executive of JPMorgan Chase & Co (JPM.N), said the bank was preparing for "potentially catastrophic events." John Williams, President of the Federal Reserve Bank of New York, warned of a possible backlash from the market if a solution to the debt ceiling problem was not found. Plus, we've all heard about the coal problems in China. The lack of electricity led to blackouts and the need to save money; many processors, including grain and oilseeds, stopped their work altogether. In China, there has been a tendency to reduce the process- ing of soybeans. Refining volumes have continued to decline over the past few weeks. Today, the country's soybean oil re- serves are estimated at 850 thousand tons, which is 500 thou- sand tons less than last year and 610 thousand tons less than the average value for the last 3 years. Considering the fact that only a small amount of imported soybean oil has been contract- ed for September and October of this year, and also, in the con- text of the policy of restricting the use of electricity, the number of working processors will only decrease, which will support prices. If we also take into account that the price of rapeseed oil will remain high in the current season, then it is possible that in the near future we will see a rise in prices for soybean oil in China to the world level. In the current season, the cost of production of soybeans has increased significantly, therefore, taking into account the growth of the cost (in the current season, the increase in the cost of pro- duction is about 2000-3000 yuan per hectare) and the current market situation, the price of soybeans, at the start of the harvest- ing campaign, will not be lower than 5000- 5200 yuan per ton. There is still about two weeks left before the start of an active har- vesting campaign, but already now many farmers say that it is not worth expecting active sales at the start. Trading companies are confident that in the first months after harvest, it will be difficult for them to find the beans of the new crop. Many Chinese crushers, in order to reduce the cost of production, can partially replace non- GMO soy with GMO soy. The state today allows this to be done, using this mechanism as one of the ways to control the price level. The Chinese corn market is not such big today as it was a year ago. Recently, there has been a decrease in the sales of imported corn, which makes many importers worry. Importers are trying to attract customers by lowering prices. Small feed producers (most of the imported corn is used for feed produc- tion) today prefer Chinese corn because of the lower price, which forces importers to lower prices even more, even at a loss. The increase in demand for imported corn has led to the fact that the price of Chinese corn, especially of not very good quality, also began to decline. However, this situation may change. If after an active start of harvesting the quality of corn is low, then the price of last year's corn will immediately adjust. In addition, rains in the south of the country will affect the overall yield, the deficit will have to be covered with last year's supplies. While corn is pretty attractive not for Chinese farmers only but for Brazilians as well, on the other side of the world farmers prefer to plant more corn while the government zeroed imports duty. Due to dry weather, Russia may plant less winter wheat this fall than expected, Reuters reported citing analysts. The dry weather also reduced its 2021 wheat crop. Winter wheat sowings have fallen further behind the average pace in re- cent days, following initial delays when planting started. Winter wheat usually accounts for 70% of Russia's crop and brings a higher yield than the spring planted crop. Farmers had sown winter grains on 10.8 million hectares as of Sept 30, down from 12.3 million hectares at the same date a year ago, according to the agriculture ministry. Preliminary data from Russian regions show that farmers would be able to sow about 19 million hect- ares of winter grains, the ministry told Reuters. The area totaled 19.3 million hectares last year. Some analysts see this not as the effect of the weather, but as the reaction of Russian farmers to the floating duty, which actually took some of the profits in favor of the Russian budget. But the weather, even if there were no duties, is not conducive to sowing. In addition, the introduction of quotas is still ahead according to a scenario similar to last year's, which we have already been warned about many times. Same time numbers of the current crop are still very tricky. Who was more accurate – AgMinistry, USDA or FAS? Anyway, despite the good harvest volumes in Europe and Ukraine, the grain quality remains not the best, and some of the importers have already lowered their quality requirements. Even China made concessions. But with Australia's good crop entering the Asian market, that could change. In addition, crop failure in Turkey, Iran, Iraq, Syria, Pakistan and a number of other countries is making itself felt. It is pos- sible that Kazakhstan can sell all its grain to foreign markets, and buy Russian grain for domestic consumption because the border for wheat between the countries is conditional, there is no duty, and part of the grain is traded illegally. High prices are treated with high prices. But who will treat macro?