Meanwhile in the Black Sea.

Intending to strangle Ukraine economically and to cut one of its sources of foreign exchange, Russia decided to bomb the port infrastructure along the Danube, just 200 meters from the Romanian border. And also, Black Sea ports infrastructure, as in Odessa. As Russia wants to gain market share, they sell all their stuff at a discount to reference markets, but do all to push up reference markets too. Some fear attacks on rail infrastructure for exporting grain and oilseeds through the western borders, too.

This is leading merchant shipping to avoid the North and West sides of the Black Sea and insurers indicated that Black Sea war risk cover will no longer be offered. And so, nervousness in the markets increased after the Russian attacks, but without any real price surges as markets seem less concerned than before about such actions, believing that Ukraine has the time and ability to develop alternative export channels with the financial support of EU. It is an important and remarkable development that events supposed to support prices don’t!

Markets focus on the abundant Russian supplies (grains, oilseeds and vegetable oil) that Russia offers at a discount. If damages remain limited and local, commercial reality takes over and depresses prices.

The chairman of the Ukrainian Committee of Agricultural and Land Policy reassured about the country's storage capability despite damaged silos and blocked ports. Last year, in addition to loading and unloading equipment, Ukraine received field storage equipment to store "15Mmt of grain" for more than a year. These alternatives such as the "Australian silo bags" (huge polyurethane storage bags) or grain containers help manage the problems. Ukraine and Croatia also agreed on the possibility of using Croatian ports on the Danube and Adriatic Sea for exports. And it is important to realize that already 60% of exports passed via the “EU solidarity lanes”. Ukraine can roughly export 5Mmt of grain and oilseeds per month: 3Mmt through Danube ports, 1.2Mmt by rail, and 800,000 mt by road which comes close to the annual production of grains and oilseeds. But it is more complex and more expensive.

MARKETS

Palm oil

India and China have been buying palm oil again and palm oil prices benefitted support from higher petroleum and consequently higher gasoil prices which make it economically more attractive to use palm oil as feedstock for biodiesel. Indonesia’s domestic consumption of palm oil is seen moving up on higher use from the biodiesel industry following higher blending mandates and higher biodiesel exports. El-Nino weather patterns, which bring less rain than normal, were reported at weak-to-medium intensity and are expected to peak in August/September.



On its own palm had little power to move up due to high global production of rapeseed and sunflower seed oil, although for now the downside potential seems limited. The futures market had moved up but after July 24thcorrected, settling at MYR 3859 on August 4th.

Soybean oil

Beans, meal and oil lost strength and maybe it is too soon to turn the page away from the weather market but cooler and wetter US weather calmed market sentiment and made some already forget earlier dryness. Last Monday’s Crop Progress report pegged 83% of the US soybean crop blooming and 47% setting pods, both ahead of normal. Commitment of Traders report showed managed money/spec/funds reduced their net long position by 26,246 to 94,493 contracts in soybeans futures and options as of August 1st. However, US soybean oil stocks dropped due to less crush and high demand for biodiesel production. The booming biodiesel production in the US remains a bullish factor for soybean oil.

Rapeseed oil

In EU seed prices fell, partly under pressure from the competing new crop in Ukraine. The end of the secure corridor in the Black Sea does not pose a real threat to trade flows from UA to EU for the time being, and the Ukraine crop is expected at a record level above 4Mmt this year, and is almost 90% done.

In EU, past dry weather caused more damage than anticipated and the recent wet weather has delayed the harvest in some regions. In addition, a shortage of drying capacity has arisen. Canada continues to suffer from dryness and heat leading to reductions in production estimates. Some beneficial rains passed over the Canadian Prairies the past days, but some areas received less than 50% of normal rainfall in July making the outcome of this year's Canadian crop uncertain.

Quite a bit of Russian oil has been exported to China and the high gas oil prices make biodiesel more interesting, which may support the market in the long term.

Sunflower seed oil

So far there are no real weather concerns over de crop and on paper supply looks more than plenty for everyone. But this is making abstraction of crippled export capacities in the Black Sea region which accounts for 60% of world sunflower oil production and 75% of exports. Nevertheless, the low prices demonstrate a certain optimism and confidence about the alternative export routes from Ukraine. Russia is sitting on big old crop stocks and has been offering oil at aggressive discounts. In week 31 Ukrainian sellers of sun oil were quite active offering ‘September 23 sun oil’, which pressured prices and kept Black Sea levels below the NW EU Six Ports market.

USD, mineral oil and biofuels.

The central banks of the US and the Eurozone have both raised their key rates by 0.25% to 5.25 - 5.50% and 3.75 - 4.25% respectively. In July, US inflation was 3%, European inflation was 5.30% and the US economy continues to outperform the EU economy.

There is doubt about the economy. Both EU and the US we have not (yet) slipped into a deep recession and there are both positive and negative signals. The fact that the economy is not in recession is for some an argument for further rate hikes. While weak economic activity in some sectors contributing to disinflation would discourage further rate hikes. Expectations though remain that central banks around the globe will keep increasing interest rates to fight stubborn inflation forces. This could slow economic growth and reduce energy demand.

In an attempt to boost its underperforming economy, at the end of July, China's National Development and Reform Commission pushed strongly to strengthen domestic consumption and the private sector by, among other things, raising household incomes. We’ll see.