Developments in the Black Sea region continue to dominate the wheat market. Yesterday the market was shaken by the announcement of a referendum on joining Russia by the leaders of Lugansk and Donetsk. Today, Putin added to that by declaring a partial mobilization.
The December wheat contract on the Matif jumped yesterday by €13,50 per tonne to €339,25 per tonne. On the CBoT, wheat prices rose 7,6% to $8.93,75 per bushel. That is the largest price increase since March 3 and it has been barely three months since wheat closed at this level on the American stock market. Soy and corn also closed higher on the CBoT, but their rally was much less strong than wheat.
The increase in the wheat price is largely caused by developments in Ukraine and Russia. This week, a referendum on joining Russia will be held in the self-declared republics of Luhansk and Donetsk. The Ukrainian government and several Western leaders have already announced that they will not recognize the referendum result because there are serious doubts about the independence of the elections. The referendum is seen as Russian propaganda. Russian President Putin added to the uncertainty this morning by announcing a partial mobilization. According to Putin, only reservists are called up for military service. The mobilization is seen by various specialists as an emergency measure to turn the tide in Russia's far from successful military operation in Ukraine. There are increasing doubts among analysts about the grain deal with Ukraine. The deal must be extended in November and the chance that Russia will agree to it seems to be getting smaller by the day. In fact, several experts doubt whether the grain deal will even meet its end date.
Pride?
It is interesting to see what role Russia will play on the international grain market in the coming years. It's been a while, but in the 1984/1985 season the Soviet Union imported a record amount of 55,5 million tons of corn and wheat. It was not until the late 90s that grain imports from the now former Soviet Union fell below 10 million tons. In the first years of this century, Russian arable farming underwent an enormous transition, partly by giving the market free rein. Russia has become the world's largest wheat exporter in recent years. The dominance on the world market has even become so great that Russia dared to intervene in the free market in the 2016/2017 season with an export tax on wheat. An important side effect of the war in Ukraine is that the popularity of Russian wheat on the world market is rapidly declining. States that are pro-Putin still purchase wheat, but several countries no longer dare to do so due to fear of Western sanctions. For example, even with heavy discounts, Asian buyers are not turning to Russian wheat. The big question is what this means for Russian arable farming, which has flourished thanks to free trade on the world market. The inflow of hard currency has fueled unprecedented growth in Russian agriculture in recent decades. The question is whether Russian companies will be able to keep the grain sector going despite the current difficulties.