Wheat market eager for new grain deal between Russia and Ukraine

Wheat was one of the commodities most affected by the war between Russia and Ukraine. After the quotes on the Chicago Stock Exchange reached a record high of US$ 12 per bushel at the beginning of the conflict, the market saw the Black Sea grain export agreement as a way to reduce volatilities.

Signed between Russia and Ukraine in July last year, thanks to the intermediation of Turkey and the United Nations (UN), the deal allowed Ukraine to export grains through the Black Sea, a maritime route that – until then – was taken by Russian mines. The term has already been renewed once and expires on March 18. The expectation is that there will be a new extension.

“The agreement managed to alleviate concerns about a possible dearth of wheat in the world. Furthermore, it allowed the market to adjust to the ongoing war, as conflict tensions no longer influenced prices, and the flow through the Black Sea was kept uninterrupted,” says Jonathan Pinheiro, wheat risk manager at StoneX.

Tough Negotiations

Although many analysts believe the agreement will be renewed, Russian President Vladimir Putin’s criticism makes accurate predictions difficult. For example, Russia claims that Ukraine primarily sends grains to Western countries rather than poorer nations.

Ukraine, in turn, alleges delays in the inspection of vessel shipments at the Joint Coordination Center (JCC), which is responsible for overseeing the agreement. According to the Grain Association of Ukraine, Russia is deliberately delaying the departure of ships from Ukrainian ports.

“If not renewed, the war risk premium will impact international prices at a time when global wheat supply is already tight,” says Pinheiro.

“We will see price stress in Chicago. Perhaps not at record levels at the start of the war. In any case, the end of the export corridor generates great uncertainty in the market since 30% of the global wheat supply comes from Russia and Ukraine,” adds Roberto Sandoli, grain manager at Hedgepoint Global Markets.

“Experts believe Russia is interested in the renewal. Russia has exported 24 million tonnes of wheat so far, out of 43.5 million expected for the 2022/23 season. Monthly shipments are higher than expected, with 3.7 million tonnes shipped in January, compared to 2.1 million on average. According to Pinheiro, Russia requires a perfect scenario to sell all of its expected wheat production for this season, which would be impossible without the agreement.

Given the uncertainty surrounding the grain corridor, grain shipments from Ukraine are currently slowing.

Source: Valor Econômico

To read the original news report, please access: https://valor.globo.com/agronegocios/noticia/2023/02/24/mercado-de-trigo-aguarda-novo-acordo-entre-russia-e-ucrania-sobre-transporte.ghtml

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