VOLATILE GRAINS AND OILSEEDS PRICES SOAR ON RUSSIAN INVASION

TRADE & COMMODITIES Volatile grains and oilseeds prices soar on Russian invasion

Russia invaded Ukraine on February 24 and we are seeing the horrific toll on Ukraine’s people, loss of lives, human suffering. Over 1.9m people are said to be displaced inside the country and there is a huge increase in the number of people escaping across the borders to neighbouring host countries who have taken in more than 2.8m refugees, not seen in Europe since World War II. The invasion has caused substantial volatility in markets across all asset classes, the ongoing conflict and resulting spike in agricultural commodity prices, oil and natural gas, fuelled concerns about rising inflation-the entire global economy will feel the effects of slower growth and faster inflation, potential food security risks, the escalation of hunger and poverty especially in import-dependent countries in Near East Asia and Africa.

Global wheat prices already reflected a tight supply situation but following the invasion and the potential loss of wheat supplies, both countries being significant exporters of wheat, global wheat prices soared to record highs. The 2022 northern hemisphere winter wheat crop, including

Maria Cappuccio

the wheat crop in Ukraine, was planted last Autumn, so little can be done to increase its acreage. By contrast, higher values for corn, soybean and spring wheat can attract new acres into production, from either other crops or fallow land.

WHEAT OUTPUT FORECAST HIGHER IN 2022

Despite a smaller area for wheat of 226m/ha, the UN Food and Agricultural Organization’s (FAO) preliminary forecast for global wheat output, points to a new record of 790mt (million tonnes). The bulk of the increase is due to expanded acreage in the US, recovery in Canada and in Russia. The forecast assumes that the main growers will not reduce fertilizer application and that weather will improve in parts of the northern hemisphere. Reported damage to the land in wheat growing areas means the crop will be revised lower and will not be available to the global market. Meanwhile, Russian wheat exports will be subject to sanctions.

UKRAINE’S LOSS OF ACREAGE AND INPUTS Winter crops planted last autumn in Ukraine and Russia enjoyed mostly favourable conditions. Ukraine’s Deputy Agricultural Minister Taras Vysotskiy confirmed Ukraine had lost around 10% of its farm acreage to “military effects” with farmers short of fuel, financing and fertilizers ahead of the spring planting season. The conflict heightens concerns about tight global fertilizer supply chains and restricted shipping operations to the region, as well as sanctions on Russia and Belarus, leading suppliers of nitrogenous and potash fertilizers.

Soaring natural gas prices, contributes to recent price gains expected to impact acreage decisions and application rates, with implications for global yields and crop quality.

Ukraine’s Agriculture Producers’ Union (APU) said that around 2m/ha of winter wheat, barley and rye sown for 2022 harvest could be damaged due to the hostilities and only around 5.5m/ha of winter grain crops could be threshed.

NORTH AMERICA INCREASED ACREAGE IN 2022/23

The global wheat area is foreseen to grow moderately this year, with high input prices to cap a larger expansion. The bulk of the growth in global wheat production, is expected to come from the US, where winter wheat acreage is the largest in six years. Acreage expansion bolsters production prospects forecast at 53mt,

2017 2018 2019 2020 2021 2022

Europe 156 142 159 142 158 157 EU 137 123 139 127 139 139 UK 15 14 16 10 14 14 E. Europe 4 5 4 5 5 4 CIS Baltic’s 142 124 130 140 134 135 Russia 85 72 74 85 75 81 Ukraine 27 25 29 25 33 29 N &C America 81 87 88 88 70 88 US 47 51 53 50 45 53 Canada 30 32 33 35 22 31 S America 26 29 29 28 32 30 Argentina 19 20 20 18 21 21 N East Asia 40 39 43 43 35 43 Turkey 21 19 18 18 16 19 F East Asia 268 264 271 277 283 284 China 134 131 134 134 137 138 Africa 27 29 27 26 30 28 North Africa 19 21 18 17 22 19 Australia 21 18 15 33 36 27

Total 761 732 762 776 779 790

Source IGC, USDA, UN trade-totals may not add due to rounding

large swathes of the Great Plains are affected by drought conditions, belowaverage rainfall in the spring, would dampen yield prospects. Canada expects a more typical crop of c.31mt.

NEGLIGIBLE CHANGE IN EU WHEAT ACREAGE EU wheat crop conditions are satisfactory. French farm office AgriMer reported the soft wheat crop was mostly in good, condition. Dry weather could reduce production from Iberian countries, while expensive scarce fertilizer supplies may affect crop yield potential across the EU.

NORTH AFRICA WIDESPREAD DROUGHT Widespread drought conditions have affected wheat crops in Morocco, western areas of Algeria and central Tunisia, denting wheat production prospects in 2022/23

CHINA TO LIMIT WEATHER DAMAGE TO WHEAT China’s Minister of Agriculture confirmed in March that heavy rainfall delayed planting last fall and this may adversely affect wheat crop conditions. To strengthen field management a fund of 1.6bn yuan ($253m) has been set-up to stabilize winter wheat in five main producing regions, including Hebei and Shandong provinces and to a dozen other main production regions to prevent, control the impact of extreme weather on wheat.

SOARING FERTILIZERS AND INPUT COSTS Higher government backed prices for Indian farmers are expected to expand wheat acreage in 2022. Heavy rains affected the conditions for this year’s winter wheat crop. Pakistan’s government set a 28.9mt wheat target in 2022, but this depends on the cost and availability of inputs, and growing conditions — higher support prices for wheat, unlikely to cover the soaring costs of fertilizers, electricity and diesel.

GLOBAL WHEAT SUPPLY & DEMAND 2017–2021/22 (MT)

2017/18 2018/19 2019/20 2020/21 2021/22

Production 762 732 762 776 779 Consumption 742 735 747 783 787 Trade 187 178 194 199 205 Stocks 285 281 297 290 282 China 130 138 150 144 142 Major exporter stocks* 75 74 61 60 56

Source: IGC, FAO, USDA-Production-mainly harvested Jul-Dec/Local marketing years *Argentina, Australia, Canada, US, EU, Kazakhstan, Russia, Ukraine

AUSTRALIA’S WHEAT OUTPUT IN 2022/23 The wheat crop is anticipated to be lower than the previous record but around 27mt.

EXCEPTIONAL AUSTRALIAN CROP 2021/22

Better crops in the EU, Ukraine, UK and Australia, offset reduced output in North America, Russia, Kazakhstan and Turkey. Global wheat output forecast to rise to a record 779mt in 2021/22.

CHINA LIFTS BAN ON RUSSIAN WHEAT AND BARLEY In the past, wheat and barley exports from all regions in Russia, were unable to be exported to China, due to phytosanitary concerns, in particular the dwarf bunt fungus, common to many grain-growing regions of Russia. But this changed on 8 February, when China’s customs agency approved imports of wheat and barley from all regions in Russia.

SMALL INCREASE IN WHEAT FOR FEED USE Global wheat consumption forecast to rise to 787mt. A small increase for food/seed/industry to 625mt. Feed wheat use to rise by 4mt to 162mt due mostly to increased supplies of feed wheat in the EU and the UK.

SUBSTANTIAL DISRUPTIONS TO WHEAT TRADE Global wheat trade is forecast to rise by over 6mt to 205mt in 2021/22, reflecting greater imports into Iran, Iraq, Turkey, Saudi Arabia and South Korea. China’s wheat imports are forecast lower at 9.5mt. The export quota for Argentina’s wheat revised up by 2mt to 10mt.

Wheat export bids were already high on drought conditions in the US, but following the Russian invasion into Ukraine, wheat prices made unprecedented moves higher. Grain exports from Ukraine and Russia, are revised lower to 20mt and 32mt respectively in 2021/22. Russia is also facing huge financial sanctions that create an unstable banking system and depreciating value of the Russian rouble. All of these factors contribute to

WHEAT FUTURES RALLIED TO $13.6/BU The CBOT Futures Markets reflected that uncertainty with the greatest rally since the war began. The soft red winter wheat contract (May) futures soared to $13.6/bu (8th March) before scaling back to close at $11.064/bu (11 March) and lent secondary support to other feed grain markets, which face their own bullish fundamentals. Some three weeks in, “…the wave of panic from global end-users seems to have subsided since the invasion began with some sourcing only the basic amount of wheat they need, finding alternative origins, or pausing on buying altogether,” said Arlan Suderman, chief commodities economist at brokerage StoneX. CBOT soft red winter wheat contract (May) futures closed up 191/2 cents at $11.486/bu ($422.03/t) (15 March). Feed and Food buyers made wheat purchases — Tunisia ODC purchased 125,000/t wheat at $500.64/t; Algeria bought c.700,000/t of wheat at $485/t (11 March).

TIGHT GLOBAL WHEAT STOCKS IN 2021/22

Global wheat stocks are forecast lower at 282mt (world 140mt, China 142mt), with stocks among major wheat exporters, forecast to fall to record lows by the end of 2021/22.

US CORN ACRES 92M/HA FOR 2022/23

US farmers to take key planting decisions in March regarding the next harvest.

Currently, USDA expects US farmers to plant 92m/acres of corn in 2022/23 virtually unchanged from last year, with projected yields of 181/bu/acre — corn output is forecast to rise to 387mt (15.2bn/bu). Growth in domestic use offset by lower exports. Feed, food/ seed/industrial use are projected higher at 173.7mt (6.84bn/bu). Corn use for ethanol to increase to 141.6mt (5.4 bn/bu) on expectations of growth in motor gasoline consumption. Abares forecast global corn output to increase by 2% to more than 1.2bn/t in 2022/23 assuming average yields.

LARGE BARLEY HARVEST FORECAST IN 2022/23

Strong global prices for corn and supportive seasonal conditions are likely to influence planting intentions, leading to an increase in the barley acreage in 2022/23. Input costs and availability are also likely to play a part in determining planting decisions. Abares forecast global barley output to rise by 8% to 157mt 2022/23, reflecting a rebound in Canadian production and a recovery in global barley stocks.

HUGE COARSE GRAIN HARVEST IN PROSPECT FOR 21/22 Global coarse grain harvest is forecast by USDA to rise by 65mt to 1.49bn/t. Global demand for coarse grains is forecast to rise to 1.49bn/t split between feed use to rise by over 22mt to 923mt and food/seed/industry use to rise by over 22mt to 571mt. Demand for coarse grains projected to increase in China, Argentina, Brazil, Ukraine, Mexico and Nigeria. Trade is forecast at a record 243mt with a 5mt increase in global stocks at 326mt (World 115mt, China 211mt) by the end of 2021/22.

TIGHT SUPPLY FOR CORN Global corn production is forecast at a record 1.2bn/t in 2021/22, on large crops in the US 384mt, Argentina 53mt, Brazil 114mt, Ukraine 42mt. Feed demand to increase by 32mt to 754mt; food/industry demand increased by 26mt to 443mt. Global corn trade is forecast to rise by 9mt to 193mt in 2021/22. The US is forecast to export almost 64mt corn, Argentina 42.5mt, Brazil 32.5mt and Ukraine 33.5mt revised lower to 27.5mt.

TIMELY PLANTING OF BRAZIL’S SAFRINHA CROP This should help Brazil’s second corn crop to be in a good position to avoid the dry season during pollination, an early start to

2017/18 2018/19 2019/20 2020/21 2021/22

Production 1,363 1,402 1,417 1,434 1,499 Consumption 1,377 1,423 1,432 1,450 1,494 Trade 192 207 215 234 243 Stocks 373 352 337 321 326 China stocks1 223 211 201 207 211 Major c/grain 94 89 84 60 68 exporters stocks Major corn exporters 77 73 67 46 56* stocks

Source: USDA —*Argentine, Australia, Brazil, Canada, EU, Russia, Ukraine, US 1The IGC in January raised their estimate of China’s corn stocks from 76.2mt to 190.6mt by the end of 2017/18

the dry season, would force a lot of the crop to rely solely on subsoil moisture for both pollination and grain-fill.

UKRAINE CORN EXPORTS LOWER IN 2021/22

Before the Russian invasion, Ukraine had exported almost 19mt with over 14mt remaining. Reports of damage to infrastructure, storage facilities and the lack of fuel, means transporting grain to the export ports on the Black Sea is impossible. The vast bulk of Ukraine’s grain exports flow out of Black Sea ports, that were closed and commercial shipping suspended almost immediately after the invasion. Insurance premiums soared as markets deem the Sea of Azov and the Black Sea (including waters close to Romania and Georgia) high risk. USDA cut its estimate for Ukraine’s corn exports to 27.5mt and increased exports for Argentina to 42.5mt, Brazil 32.5mt and US 63.5mt.

HIGHER FEED GRAIN IMPORTS SUPPORT CHINA’S MEAT OUTPUT The Chinese pig industry’s efforts to contain African Swine Fever (ASF) and rebuild the pig herd have driven growth in feed demand for coarse grains. China’s large domestic corn harvest is forecast at 273mt, with corn imports of 26mt-the large feed grain purchases expected to continue in 2022 to support domestic meat production. Chinese demand for feed barley is forecast at 10.5mt in 2021/22.

CHINA’S PORK PRODUCTION TO RISE In 2022, domestic swine, breeding sows, and pork production are expected to exceed 2021 levels. Producers increasingly compete for market share as morbidity, associated with ASF outbreaks, falls. China’s pork production in 2022, is forecast at 49.5mt due to higher hog production and slaughter levels. Domestic pork prices to remain low in 2022 on weak consumer demand. While large producers continue to expand their market share of domestic pork production. According to financial statements and media reports large publicly traded hog producers culled substantial numbers of inefficient sows to help reduce significant losses in 2021.

COVID-19 VARIANTS SURGE IN CHINA’S MAJOR CITIES The recent nationwide surge in Covid-19 cases in China, led the government to lockdown Shenzhen city and Jilin province,

Oilseeds 2017/18 2018/19 2019/20 2020/21 2021/22 Production 583 600 581 604 602 Soybean 343 361 340 366 354 Trade 177 172 191 191 181 Crush 484 489 508 508 514 Meal use 321 324 336 339 342 Oil use 192 198 202 205 209 Stocks 119 135 114 115 104 Soybean 101 115 97 102 90 US 14 27 16 9 9 S.America* 58 63 48 54 46

Source: *Brazil and Argentina; USDA/Meal use excl. fishmeal c.5mt

while China’s largest city Shanghai, is under a slew of pandemic-related restrictions as the country pursues its zero Covid-19 policy. In all some nineteen provinces are affected-China has sent nearly 30m people into lock-down across the country in an effort to contain its worst coronavirus crisis since early 2020, driven by the highlytransmissible Omicron and Delta variants.

ETHANOL BLENDING RATE EXPECTED TO INCREASE America’s top biofuel and farm advocates called on President Biden in March to swiftly expand access to plentiful, lowercost biofuels as Russia’s invasion of Ukraine pushes fuel prices closer to record levels. The Environmental Protection Agency (EPA) is expected to finalize biofuel blending requirements with the mandated rate expected to increase in the next five years. The use of corn for ethanol production, in response to new renewable energy targets, is expected to increase.

TIGHT CORN STOCKS AT RATIONING LEVELS Global corn stocks are forecast at 301mt (World 91mt China 210mt) with major exporter stocks at 56mt an increase of 10mt over last year; though the global stocks-to-use ratio, excluding China, are at rationing levels and no loss can be tolerated.

SOARING FREIGHT RATES War in the Black Sea region is the dominant issue driving markets. A glimmer of hope that talks would progress to a ceasefire saw a temporary easing in international values for grains/oilseeds and for freight. Panamax ships on the US PNWto-South Korea route for May shipment prices eased to $43/t versus $50/t. The dip in freight rates led Asian feed buyers in South Korea to lock-in corn purchases. Panocean sold 65,000/t of corn for June 23 delivery at $412.50/t cfr and Bunge sold two cargoes for similar quantities and at a similar price. CBOT Corn May ’22 contract closed down $7.304/bu (16 March ’22)

FARMERS LIKELY TO REDUCE OILSEEDS IN 2022

Ukraine is a major producer and exporter of, oil meals and vegetable oils especially sunflower seed. In a typical year, Ukraine grows sunflower seed and to lesser extent rapeseed. Ukraine’s Deputy Agriculture Minister Taras Vysotskiy (12 March) said Ukraine plans to start spring plantings in

the coming weeks, the country’s APU confirmed farmers were likely to reduce the area sown with sunflower seed and rapeseed in 2022 and plant buckwheat, oats and millet.

Given the ongoing conflict in some way the markets will need to recalibrate and adjust to the new reality that Ukraine’s sunflower industry is off-line for the foreseeable future and this may mean utilizing crush capacity elsewhere in the world.

Longer term depends on what happenshow long the conflict will last, what sort of damage to infrastructure has been sustained and the length of time it takes to have a workforce in position to be able to restart the industry

US SOYBEAN CROP 2022 As farmers consider their planting intentions for 2022, USDA project record US acreage for soybeans at 88m/acres, an increase of over 1m/acres from last year, implying production of c.125mt. A recent survey in March of US farmers by Allendale Inc suggests US soybean acreage in 2022 could be even higher at 89.281m/acres.

DROUGHT AND DRY WEATHER CUTS OILSEED OUTPUT IN 2021/22 Global oilseed production is projected at 602mt and marginally below the previous year. Despite a better US crop dry weather in South America further reduced overall soybean production and due to the drought in Canada rapeseed outturn, partially offset by better crops of sunflower seed, copra, cottonseed, palm kernel and groundnut.

SOYBEAN OUTPUT CUT BY 12MT TO 354MT

Global soybean production for 2021/22 was revised lower by 12mt to almost 354mt in March ’22. Deteriorating conditions for soybean crops in southern Brazil prompted a 7mt cut in output to 127mt and a 1mt cut in output to 5mt for Paraguay. For Argentina, damage to the first crop of soybeans in February cut prospects by over a 1mt to 44mt. Consequently, global trade and ending stocks for soybeans are reduced to 90mt. Tight supply reflected in strong demand and lower soybean stocks of 7mt continue to underpin soybean prices.

STRONG DEMAND FOR MEAL AND OIL SUPPORT CRUSH MARGINS IN 2022 Poultry production in 2022 is expected to be a record with a near record for beef and hogs. Protein demand continues to grow around the world and supports soybean meal for animal feed and vegetable oils. Renewable Green Diesel (RGD) is also changing the dynamics for soybean meal. The smaller soybean crop in Argentina, should support crush margins in North America and also in Europe. Global oilseed ending stocks year-on-year are forecast to fall subject to adjustments in respect of Ukraine’s usable stocks.

CHANGES IN CHINA’S MEAT PRODUCTION DRIVES SOYBEAN MEAL DEMAND A key driver of global protein meal demand includes changes in China’s meat production. Pig production has improved substantially following the containment of the spread of ASF and efforts to rebuild the pig herd. The higher production was enabled by increased protein meal production and is reliant upon imports, that has supplied 85% of China’s soybeans over the past decade. China’s protein meal production is expected to continue growing in the medium term, but at a slower pace.

This is linked to recent policy announcements, which target stable meat production at close to pre-ASF levels. The current devastating outbreak of Covid 19 with the Omicron and Delta variants sweeping the country is likely to slow demand for meat and meat products.

Countries

Brazil US Argentina China India Paraguay Canada Others

Total 2017/18 2018/19 2019/20 2020/21 2021/22

123 120 129 138 127 120 121 97 115 120 38 55 49 46 44 15 16 18 20 16 8 11 9 10 12 10 9 10 10 5 8 7 6 6 6 20 23 22 21 23

343 361 340 366 354

SOYBEAN & SOYBEAN MEAL — MAJOR IMPORTERS 2019–2020/21 MT

MAJOR OILSEEDS, MEAL & OIL SUPPLY/DEMAND 2021/22 (MT)

Soybeans Soybean meal 2019/20 2020/21 2021/22 2019/20 2020/21 2021/22

EU 16 16 16 19 19 19 Asia 115 117 111 21 21 21 China 99 100 94 — — — S&C America 7 7 5 8 8 8 N. America 6 7 7 4 4 4 Mexico 6 6 6 2 2 2 M.East/Africa 12 11 11 7 8 7 Others 7 7 7 3 4 4 Total 165 165 157 62 64 63

Source: USDA

DCi

Soybeans Sunseed Rapeseed Copra Palmkernel Peanuts Cottonseed Total

Oilseeds Meal Prod Trade Crush Stocks Prod Trade Use

354 158 315 90 247 68 244 57 3 50 4 23 8 22 71 14 70 5 41 7 40 6 * 6 * 2 1 2 20 * 19 * 10 8 10 50 5 20 4 8 * 8 44 1 34 1 15 * 16 602 181 514 104 346 92 342