Drone footage wheat field

It had slipped off the radar recently, but this week the war in Ukraine burst back into the spotlight.

The week started with the poorly disguised collapse of the Black Sea grain corridor.  Moscow’s often repeated concern that their demands were not being met, finally resulted in Russian co-operation with the initiative breaking down.

Had it been left at this, the market hoped that Ukraine, on the eve of their winter crop harvest, would still be able to move grain.  However, in a rather alarming uptick in aggression Russia stated that any maritime vessels moving into Ukrainian ports would be considered legitimate military targets.  But it was the next move by the Russians that caught the market offside.  Ukraines ports, including the key ports of Odessa and the nearby city of Chornomorsk, have been hit by a barrage of missiles and bombs targeting loading and storage facilities. 

The wheat market leapt 8% or nearly 60¢/bu on renewed concerns that the flow of Ukrainian grain would be slowed to a trickle and that most of its 16mmt of wheat and 30mmt of corn would be land locked.  It has renewed concerns that some of the worlds most food insecure countries would again be at the mercy of food shortages.

The assumption is that ample Russian supplies will fill that void, however the new aggressive stance (on both sides) that civilian vessels are now considered legitimate targets throws up some doubt about navigation in and out of the Black Sea.

Weather risk is also raising its head again.  Temperatures are on the rise across North America with little to no rain in the seven day forecast.  The gravest concern remains in southern Canada where models are showing deteriorating yield potential.  The key US Midwest has seen an improvement in drought areas in the past couple of weeks.  However, if the dry conditions persist beyond the end of July and into August, this could start to impact the soybean crops in particular.

Next week

We suspect that the Black Sea driven rally will settle in time – assuming there are no more flash points.  It does seem that the market has become addicted to the volatility and that it is here to stay for a while longer yet.

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Click on graph to expand

Click on graph to expand

Data sources: Reuters, USDA, Assoc Press, Next Level Grain, Mecardo

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