US wheat field rain

Since the end of the Black Sea Grain Initiative, the wheat market has been on the receiving end of some additional volatility. We have seen the Ukrainian port of Odessa under almost continuous air strikes as the Russian army attempts to knock Ukrainian exports out of the equation.

Early in the week, Russia upped the ante.  Since the start of the war, Ukraine and the UN have invested in alternative pathways to enable grain to continue flowing. One major route was the Danube River (see image), which is on the border between Ukraine and Romania.  It can allow Handymax-sized vessels (~17kmt) to travel into central Europe where loads can then be dispersed.  It is understood that Ukraine was exporting between 2-3mmt per month in this manner.

Russia turned their attention from the ports in and around Odessa and zeroed in on the ports at the mouth of the Danube (Remi & Izmail). This is a fairly serious escalation due to the proximity of a neutral country, Romania, which also happens to be a member of NATO. The closest strike was apparently a mere 200m from the border.

Having bolted out of the blocks, the wheat market has since retraced much of the rally that we saw at the start of the week. While the risk remains heightened, the wheat market seems content (for now) that a solution can be found. There is speculation that the strikes on the Danube terminals were a ‘shot across the bow’ from the Kremlin to the UN Council in an attempt to get negotiations back on track.  At least one source I’ve read seems to think that a “Grain Initiative 2.0” is on the table with concessions being considered to Russian demands.

Whatever Russia’s end goal is here, it appears that they want a monopoly on Black Sea grain exports.  By weakening Ukraine’s export power, it weakens its economy and potentially its ability to fight the war. It highlights the importance of the Black Sea and the reliance that many in the Middle East and North Africa have on its export capacity.

Next week

The wheat market will be watching for any escalation in conflict or anything that resembles a diminishing of Russian export transit.  Global food security has become a big stick to wield and we can be sure that many people will be working behind the scenes to ensure that things don’t get worse.

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Click on graph to expand

Click on graph to expand

Data sources: Reuters, Green Square AC, Google, Next Level Grain Marketing, Mecardo

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