Obtain free Agricultural commodities updates
We’ll ship you a myFT Day by day Digest e-mail rounding up the newest Agricultural commodities information each morning.
The value of wheat has been pushed to a close to three-year low by an exceptionally robust crop in Russia, however analysts warn that an escalation of tensions between Ukraine and Russia within the Black Sea and excessive ranges of hedge fund bets danger inflicting a renewed spike.
Costs have fallen greater than a fifth for the reason that finish of July, even because the Russian invasion continues to disrupt exports from Ukraine, one of many world’s prime exporters.
Merchants have been betting {that a} glut of provide from Russia this 12 months will assist preserve costs depressed at a time when inflation is driving different agricultural commodities resembling cocoa and low to multiyear highs.
“We’ve got seen wheat costs considerably decline mainly because of Russia,” mentioned Michael Magdovitz, senior commodity analyst at Rabobank.
However analysts warn that costs might quickly rise if the conflict spills out throughout the Black Sea. Russia’s Black Sea ports deal with about 70 per cent of its wheat exports, making it a vital artery for the worldwide provide of grain.
![Line chart of Chicago futures price, US cents per bushel showing Wheat prices are near a three-year low](https://www.ft.com/__origami/service/image/v2/images/raw/https%3A%2F%2Fd6c748xw2pzm8.cloudfront.net%2Fprod%2Fd4623e90-57cb-11ee-a863-fd185661912a-standard.png?source=next-article&fit=scale-down&quality=highest&width=700&dpr=1)
The delicate nature of the market was underscored on Wednesday when futures costs initially jumped greater than 2 per cent to $5.91 a bushel after a Ukraine-bound cargo ship hit a mine within the Black Sea, earlier than falling again.
World grain costs have greater than halved since peaking at greater than $13 a bushel within the wake of Russia’s invasion of Ukraine final 12 months. Prices rocketed as Moscow blockaded Ukraine’s Black Sea ports, slicing off one of many world’s largest grain exporters from worldwide markets and threatening a world meals safety disaster.
A deal final 12 months, brokered by the UN and Turkey, allowed some 33mn tons of grain to be shipped out of Ukraine, serving to to deliver the worth again down, and information of a bumper crop in Russia this season has additional damped costs.
Merchants are betting that the development will proceed. Quick positions within the wheat market — or bets on falling costs — have risen to a three-month excessive, in response to the newest figures from CME, the world’s largest futures change.
Buyers initially feared the Kremlin’s resolution to pull out of the agreement in July would ship costs hovering once more and push hundreds of thousands extra into starvation. Nonetheless, Russia’s personal wheat exports have unexpectedly helped fill the gap left by the shortfall from Ukraine.
Ukraine, which accounted for 9.2 per cent of world wheat exports within the 2021-22 season, the final earlier than the invasion. That’s anticipated to fall to six.4 per cent for the 2023-24 harvest season, S&P estimates.
In contrast Russia, already the world’s largest exporter, is about to produce 22.5 per cent of world exports for 2023-24 harvest season, from 15.9 in 2021-22. “Ukraine’s loss has been Russia’s acquire,” mentioned Magdovitz.
That complete might rise once more this 12 months. Russia exported 46mn tons of wheat in 2022 and has forecast it’s going to export 47mn tons this 12 months, in response to estimates from S&P World Commodity Insights. “I might not be shocked in the event that they export 50mn,” mentioned Paul Hughes, chief agricultural economist at S&P World.
Russia’s surplus has additionally offset fears of falling yields in different main wheat-producing nations. Final week a US authorities forecast on world output for the 2023-24 season revised down targets for Argentina, Australia and Canada.
However analysts warn that the wheat market stays prone to sudden strikes increased as the burden of derivatives bets on additional declines rubs up towards unpredictable geopolitics.
Analysts have warned that the futures value is under the underlying worth of the wheat. That raises the danger that an sudden disruption to world provides might result in a leap within the value, as merchants are pressured to purchase futures contracts to cowl potential losses.
“In the event you’re a speculator chances are you’ll need to watch out, if Russia instantly can not provide then there’ll be a spike in value,” mentioned Magdovitz.
Andrey Sizov, managing director of Black Sea grain consultancy SovEcon, warned that Moscow might attempt to put a ground on costs by limiting exports. That may additionally ease the burden on the nation’s stretched export infrastructure, he mentioned.
The top of the Black Sea grain deal elevated the danger of market-moving assaults from each side, Sizov added.
The profitable voyage of one other vessel, Resilient Africa, from a Ukrainian Black Sea port on Tuesday signalled that Ukraine might reopen their sea export route from Odesa and arrange a Black Sea grain deal with out Russia.
The transfer will virtually actually draw a response from Moscow — significantly if Kyiv celebrates the grain hall as a triumph within the Black Sea, in response to Sizov. “I feel after that we’ll see a reversal,” he mentioned.
Wheat costs in Chicago briefly jumped as excessive as $7.77 in July when Moscow mentioned all vessels working within the Black Sea may very well be focused and later that month elevated 12 per cent when Russia launched attacks on Ukrainian grain ports.
To date, Ukraine has proven “nice restraint” in not retaliating but when that had been to occur “costs would go a lot increased,” mentioned Hughes.