Australian wheat shipping terminal

The market is holding its breath on news of a potential grain corridor for the resumption of food products from Ukraine. Information leaking from Turkey would suggest that a deal has been negotiated between the warring parties, with just a few ‘minor’ details to be ironed out. Reuters reports that a deal will be announced Friday (tonight our time).

What exactly this looks like remains unknown.  Some remain sceptical that a workable solution can be maintained, others are encouraged by the fact that Turkey, as a UN member, will effectively underwrite the proposal by providing naval escorts and minesweeping duties.

The next question will be how the wheat market reacts.  The potential of a grain corridor has been hanging over the markets head for a couple of months now.  It was one of the catalysts for the massive downturn that we have seen in the futures market over the past two months, combined with a souring economic environment.

Should grain (wheat, corn, oilseeds) start to flow relatively unimpeded, it would inevitably be bearish in the short to mid-term.  The issue will be how quickly exports can resume, given the damage to existing infrastructure, supply chain issues and the fact that south eastern Ukraine is an active war zone. The deal, while encouraging for the millions of food insecure people in sub-Saharan Africa and Middle East countries, has many moving parts and will require active policing to ensure the best outcomes are achieved.

Perhaps the positive to come from this (other than averting a food crisis) is the potential to improve the flow of fertiliser from Russia.  The relative unavailability of phosphates, potash and nitrogen based fertilisers from Russia, has seen prices soar globally and has cast question marks over the ability of major exporters to reach full crop potential going in to next year.

The week ahead….

News of a deal being signed will be considered bearish by the market.  However, over the next few weeks and months, we’ll get to see how effectively access has or can be restored.  We’ll also get a look at Ukrainian new crop stocks and be able to assess how much damage has been done to production. 

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Data sources: Reuters, Assoc Press, Mecardo

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