Monday Market Briefing - 5th February 2024

Shipping dangers in the Red Sea area are ongoing as Yemeni Houthi rebels continue to fire upon commercial vessels. Counter-strikes by US & UK forces may be a show of strength, but do nothing to encourage traffic back into the area via the Suez Canal which is down 42% since the attacks started. Instead, bulk vessels to China are now diverting via Southern Africa, adding 15-25 days to sea voyages. This extra logistical cost is being passed onto consumers via higher product costs.

Crude oil price is up $10/barrel during this period (although is showing weakness again this morning) and this has supported the production cost for fertilisers, particularly Urea FOB Egypt which is up $85/MT. For both oil and urea, part of the price hike can be accounted to “war risk”, but with drifting grain values it is unlikely to encourage extra production for Harvest 2024.  Historical values for Oil, (Nitrogen) Fertiliser and Grain tend to move up and down in unison, with Grain prices often lagging behind by a number of weeks. Although demand for old crop grains is currently poor, perhaps this rally in Oil and Fert creates some short-term support for wheat? Together with lower EU wheat plantings for Harvest 2024, these higher input prices could put a floor in new crop wheat values, particularly if we see global demand for grains return to normal.

Have a good week