As Western Canada endured record-breaking cold last week, much of Russia and Europe enjoyed milder than normal weather.
And as we parse the words of our federal leaders for their potential foreign policy and trade reactions in foreign capitals, it is interesting to note that that there are sensitivities everywhere. Last week India, the world’s largest buyer of palm oil, took steps to block imports of the oil from Malaysia because the prime minister of that country criticized Indian government policies.
First let’s look at Russia. Agricultural research firm SovEcon’s recent weekly commentary said the country’s wheat region remained very dry and warm with temperatures three to 12 C above the norm.
There is little or no snow cover but the warm temperatures mean there is no winterkill so far. However, the crop would be vulnerable if the weather was to turn cold without snow.
The dry conditions continue the trend set in autumn. Crops are in winter dormancy now, so the markets are little interested in Russian weather, but the current dryness increases the need for rain once the weather warms and growth resumes.
The markets, however, are interested in the Russian government’s talk last week of limiting grain exports in the second half of the marketing year because it does not want to leave itself vulnerable to shortages in the domestic market.
This provided modest support to wheat futures last week.
In November, The Western Producer’s Sean Pratt reported on speculation that the expected tight supply-demand situation had the potential to lead to export restrictions.
Russia harvested an estimated 73.5 million tonnes of wheat in the summer, a little more than the 71.69 million tonnes produced the year before but well down from 2017’s bumper crop of 85.17 million.
At this time last year there was also speculation that export controls would be imposed but the government ultimately decided against them.
Reuters News Service reported last week that the Russian agriculture minister had drafted non-tariff quotas for exports for all grain of 20 million tonnes for the second half of the marketing year.
Analysts said such a limit likely would be large enough to prevent any real shortage on the world stage but the fact that an official limit was discussed was enough for markets to price in a risk factor.
However, news of the export quota came at the same time as a huge shake-up in Russia’s government.
The prime minister and his cabinet resigned as part of a major reorganization and constitutional change that many think is designed to ensure Vladimir Putin will retain significant power even after his term as president ends in 2024.
As this column was written, it was not clear that a new government would follow through on the export quota.
Meanwhile, oilseed markets were digesting news that palm oil trade between India and Malaysia was disrupted over a foreign policy scrap.
Malaysia’s prime minister criticized India’s pro Hindu government, saying its controversial new citizenship law discriminated against Muslims and its actions this summer in the semi-autonomous region of Kashmir amounted to an invasion and occupation.
India responded by restricting imports of refined palm oil and also taking actions to effectively halt imports of crude palm oil.
Malaysia is the world’s second largest palm oil exporter and India was its biggest market, taking about 24 percent in 2019.
It appears India will have to switch buying to Indonesia, the world’s largest palm producer and exporter.
The implication is that there will be a huge reshuffling in the markets served by Indonesia and Malaysia. Who knows what impact that will have on palm oil prices?
In recent months, palm oil values soared as production failed to keep up to demand. Production was stalled by dry weather and sun-blocking haze caused by fires. Haze is an annual problem as farmers and corporations use slash and burn to clear land for more palm production, but the situation was particularly bad last year due to the dry weather that caused the fires to spread.
Prices were also supported by new demand coming from increased biodiesel mandates in Indonesia and Malaysia.
Prices hit three-year highs and helped lift the value of soybean and canola oil.
But as the Indian-Malaysian dispute raged last week, Malaysian palm futures fell more than eight percent, their largest single week decline in several years, according to Reuters.
At this early stage, the impact on Chicago soy futures is hard to measure. Chicago traders were mostly thinking about the “phase one” trade deal between the U.S. and China signed on Jan. 15. On the surface, the deal calls for China to buy massive amounts of American agricultural products but the Chinese have also said they would buy only as market conditions allow.