Both Ukrainian and Russian grain exports in August were around half the levels recorded a year ago, largely due to continued attacks on grain infrastructure. More drone strikes between the two sides continued overnight, with the outlook for rebuilding infrastructure looking increasingly difficult and, importantly, with no sign of peace on the horizon.
There was a brief flurry of headlines around a Turkish-led proposal to establish a safe maritime corridor in the Black Sea, aimed at preventing what increasingly looks like an unavoidable rise in wheat prices. Russian exports are now being pushed through one of the few remaining export channels available to them on the Baltic Sea, which has quickly attracted the attention of Ukrainian drones.
According to Bloomberg, Russia has now cancelled export duties on wheat, corn and barley in an effort to keep grain moving. These duties have been in place since the beginning of the Russia-Ukraine conflict, partly to retain grain stocks domestically and partly to generate revenue.
US wheat remains the most expensive origin in the world, with Kansas HRW seeing some of the strongest gains as the market attempts to buy back acres. More importantly, there has been a structural shift in the wheat market.
The strong carry — the premium paid on future delivery months — that has been a feature of the recent market is no longer there. This has effectively removed one of the money managers’ cash cows: the ability to roll short positions forward into higher-priced months and capture the spread along the way.
As a result, some of the heavy short positioning that previously weighed on the market has been removed, allowing a little more technical buoyancy to return. The catalyst has been a combination of US drought, the ongoing Black Sea disruption and tightening stocks among the major exporters.
What is still missing, however, is demand.
The big importers appear content to buy hand-to-mouth while they wait to see how the Black Sea situation develops. The possibility of a diplomatic solution suddenly reopening these export channels is enough to keep buyers on the sidelines.
But you can’t help feeling that someone eventually has to blink.
The moment a major importer decides it needs to secure substantial tonnage from alternative origins — Canada, Argentina, Europe or Australia — the market could move very quickly. Once buyers realise they need to cover, it could become a rush for the door.
Wheat waits for a trigger
Both Ukrainian and Russian grain exports in August were around half the levels recorded a year ago, largely due to continued attacks on grain infrastructure. More drone strikes between the two sides continued overnight, with the outlook for rebuilding infrastructure looking increasingly difficult and, importantly, with no sign of peace on the horizon.
There was a brief flurry of headlines around a Turkish-led proposal to establish a safe maritime corridor in the Black Sea, aimed at preventing what increasingly looks like an unavoidable rise in wheat prices. Russian exports are now being pushed through one of the few remaining export channels available to them on the Baltic Sea, which has quickly attracted the attention of Ukrainian drones.
According to Bloomberg, Russia has now cancelled export duties on wheat, corn and barley in an effort to keep grain moving. These duties have been in place since the beginning of the Russia-Ukraine conflict, partly to retain grain stocks domestically and partly to generate revenue.
US wheat remains the most expensive origin in the world, with Kansas HRW seeing some of the strongest gains as the market attempts to buy back acres. More importantly, there has been a structural shift in the wheat market.
The strong carry — the premium paid on future delivery months — that has been a feature of the recent market is no longer there. This has effectively removed one of the money managers’ cash cows: the ability to roll short positions forward into higher-priced months and capture the spread along the way.
As a result, some of the heavy short positioning that previously weighed on the market has been removed, allowing a little more technical buoyancy to return. The catalyst has been a combination of US drought, the ongoing Black Sea disruption and tightening stocks among the major exporters.
What is still missing, however, is demand.
The big importers appear content to buy hand-to-mouth while they wait to see how the Black Sea situation develops. The possibility of a diplomatic solution suddenly reopening these export channels is enough to keep buyers on the sidelines.
But you can’t help feeling that someone eventually has to blink.
The moment a major importer decides it needs to secure substantial tonnage from alternative origins — Canada, Argentina, Europe or Australia — the market could move very quickly. Once buyers realise they need to cover, it could become a rush for the door.
Next week
It is hard to know where it all ends. It feels like the wheat market could explode higher, but at the same time, the potential is there for it to fold like a house of cards. This has the very real potential of becoming a multi-year problem if large stockpiles and low prices in Russia and Ukraine result in fewer acres being planted for next season.
Have any questions or comments?
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Data sources: Next Level Grain Marketing, Reuters, SovEcon, Bloomberg, Mecardo
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