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Grain Markets React Negatively to Weaker Chinese Demand, Ukraine Deal Negotiations

After recent gains, the grain markets took a negative turn on Tuesday. Joe Vaclavik, founder and president of Standard Grain, says there were a couple of key factors behind the drop.

Vaclavik; “First off, China canceled some more corn. It’s a bad look. The export program regarding U.S. corn is just not where it needs to be. So, USDA – it’s probably going to be Friday, could be in June – but they’re going to have to walk back that export projection, which means higher carry-out for the U.S. corn balance sheet. I think they have to come down at the ethanol number too. The ethanol production numbers regarding corn demand and stuff from both EIA and USDA with the grain crush are not where they need to be.”

The other big factor in the early Tuesday selloff was news about the Ukraine grain deal.

“Russia is going to come to the table and talk about this grain deal. It’s going to be a four-way meeting, going to be a two-day deal. Russia, Ukraine, the United Nations, and Turkey. And Russia is the one that reported this. It was a Russian state news agency. So, I’ve kind of thought the whole time Russia was bluffing about this grain deal thing. I think that if Russia does not renew or extend the Grain Deal, they’re going to be subject to more sanctions. There are going to be issues with Russia and China because China imports a lot of corn from Ukraine. I think Russia is going to extend this thing again. If I had a bet right now, that’s the way I’m going.”

A recent drop in corn exports is largely driven by lower Chinese demand according to Vaclavik. “Compared to the last couple of years, it’s driven by China. We had such substantial Chinese purchases. It started in 2020, right after COVID. Corn was cheap, China started buying corn, and they did so for two years straight. And this year, they bought substantially less. They now have agreements in place to buy corn from Brazil, which is a big deal. Brazil is gonna have a record crop this year. And that crop is going to be available to ship here a couple of months from now. So, if they can hold off, they’re gonna hold off because Brazilian corn’s cheaper, freight’s cheaper. They’ve also got agreements in place to do some corn with South Africa, which is not nearly as big of a deal, but still some competition. So, the U.S. is the last place China wants to buy grain or oil seeds from. They’re going to do it when it’s to their advantage, when our prices are competitive, and they can’t get it from Brazil, they’re gonna come to the U.S.”

Vaclavik says there’s a chance the U.S. might begin exporting fewer commodities and using more domestically. “It’s just going to be reduced overall. We’re going to start using more domestically. We’ve got sustainable aviation fuel and renewable diesel and things that are going to be able to hopefully offset some of that lost demand here domestically, which would be preferable. I’d rather use this stuff here domestically than ship it to China.”

He says U.S. weather is becoming the number one factor the markets will be watching in the weeks ahead.

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