A heavy sanctions package, declining ruble exchange rate, exclusion from international banking and closed port facilities. These are all factors that will push the international grain markets sharply higher again on Monday 28 February. Both the CBoT and Matif are trading higher for products such as wheat, grain maize and rapeseed. The commodities markets live with the issues of the day and are therefore more volatile than usual.
International commodity prices exploded after Russia invaded neighboring Ukraine on Thursday, February 24. Another correction followed Friday after the first clouds of smoke had cleared. Politics has not been idle over the weekend and the EU and US are trying to hit Russia where possible. That does not leave the commodities markets cold either.
Wheat to new record in Paris
The Matif opened €12,50 higher on Monday morning at €302,50 per tonne for the March contract. The May contract also exceeded €300. The exchange rate for the new harvest is still below that at €284,75, but more than €15. The March contract quickly reached a level of €320,25. That is €3,75 above Thursday's record high closing price.
Rapeseed is also higher again; not surprising given the enormously important position that Ukraine occupies worldwide when it comes to oilseeds. The April contract opened at €753,25 per tonne and rose to a temporary high of €773 per tonne. The highest price since January 31. Grain maize also showed a significant plus on the Matif, trading at €327 per tonne on Monday afternoon. On Friday afternoon, the March contract still closed at €289,25.
In overnight trading, the US CBoT already posted higher numbers. The price for wheat (March contract) is more than 6% higher. Soybeans and maize also show pluses, although they are smaller than with wheat.
Wheat up to €400
Amid the turmoil – and its impact on the markets – Egypt's state agency GASC is today trying to close a new wheat tender. It was stopped early last Thursday after only one French provider made an offer for $404 per tonne FOB. Prices in today's tender are not much lower. Only three offers coming from France and the US. French prices are $389 and $399 FOB (120.000 tons total). Wheat from the US costs $447 FOB. Converted prices between €347,54 and almost €400 per tonne. A few hours after the tender closed, GASC announced that it would also cancel this round.
Tunisia, another country highly dependent on Black Sea wheat, says it had built up sufficient supplies before the invasion. Lebanon imports 60% of its wheat from Ukraine and is in talks with India for wheat supplies. The only country Russia can currently trade wheat with is China. This country has dropped its borders and import requirements for Russian wheat. It is the way for Russia to get dollars, now that its foreign assets are frozen.
Logistics
The Black Sea is open to (freight) traffic, but port facilities in Ukraine are closed. Russia has closed the Sea of Azov to shipping. For Romania, the largest European wheat exporter after France, the Black Sea is essential. Problems in logistics here have far-reaching consequences for the export of raw materials. In Ukraine itself, transport by road, rail and ports is a major problem for security reasons. Strategic points are bombed or attacked.
In the short term, the logistics disruption will not cause a major problem. This is because countries often built up stocks in the months prior to the conflict. Enough to sing out March and April – or part of it. If wheat, maize and oilseeds have to be purchased, the EU is now the first destination for, for example, North African countries. France, Romania, Germany and Poland benefit from this. Their grains were too expensive, but in the current light the credo is 'better too expensive than not for sale'.
Analysts agree that the current grain market is impossible to predict. The traditional laws of world trade do not apply in times of war, when markets react very emotionally to news reports. Nevertheless, we are looking ahead to the current growing season for the 2022 harvest. The work on the land – also in Ukraine – is continuing as far as possible.
More Russian wheat
Thanks to an average to slightly above average amount of moisture and mild temperatures, the grains in Central and Eastern Europe are in good shape. That also applies to Russia. Market bureau SovEcon expects a Russian wheat harvest of 84,8 million tons (76 million tons in 2021). An increase of 3,55 million tons from their previous estimate. There is no question of wintering and frost damage this season. Analysts expect that on average less fertilizer will be applied, which has to do with the availability and the price level.
Parallels are quickly drawn with the annexation of De Krim in 2014. After a violent reaction in the commodity markets, with wheat prices reaching €221,25 per tonne, the price for the new crop fell to a level of €150. The fact is that the current conflict is much larger and more all-encompassing in scope. Prices have started at a (much) higher level. The grains are then in good shape, and the sowing of the summer grain also continues smoothly, a lot ultimately depends on the export opportunities. Can Russia get its wheat across the border and get paid. This is not possible with the current blockades. The ruble may have fallen considerably in value, but as a buyer it is of little use. Moreover, hardly anyone – except countries like China – is waiting to trade with Russia right now.