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Tridge Analysis

The Ukrainian-Russian conflict keeps the global grain market bullish

Updated Feb 28, 2022
The global grain market has experienced price shocks over the last week. On February 25, 2022, CME wheat futures started the day from a 14-year high mark, with the settlement price touching USD340/mt. CME corn futures surged to USD274/mt, close to their historical record high earlier in May 2021. Such leaps reflected global grain supply uncertainties created by the full-scale Russian invasion into Ukraine. It is not surprising why the Black Sea region plays a crucial role in the world demand-and-supply balance. Ukraine is responsible for 12% of global wheat exports and 16% corn exports, while Russia accounts for 17% of international wheat shipments.

From February 21-25, 2022, the week was full of turbulency for the global wheat market. The general bullish sentiment dominating the wheat trade arena since the beginning of MY2021-22 amid strong demand and lower yields in many central producing states is being supported by the war in the Black Sea region. As a result of military operations, grain traders have suspended commercial operations, including Cargill, Bunge, ADM. Given huge risks, all Ukrainian Black Sea ports have stopped operating since February 25. That means the impossibility of covering contract obligations. As far as Russia is concerned, Trige reports that grain shipments from the Russian port of Novorossiysk, an essential hub of the country’s trade, are also jeopardized as commercial vessels refrain from entering the risky zone. Shipments from the Sea of Azov have been completely frozen.

Source: CME

From July to January of MY2021-22, Ukraine exported 17.1 million mt of wheat, up 68% more YoY. USDA’s February report pegged Ukraine’s shipments to reach 24 million mt by the end of the season. With the current situation, the forecasted export potential may not be fulfilled. At the same time, importers will have to switch to other suppliers from the EU, Australia, or the USA. One of the essential buyers of the Black Sea grain, Egypt, got only one offer from France in a tender to buy wheat issued on February 24.

Depending on the situation development in the conflict region, some exporting countries could decide to expand the sowing area under wheat in the short run, as high prices for the cereal would help farmers and exporters to get more significant profits.

The corn market also reacted to the military actions with price hikes because Ukraine accounts for 16% of total global corn exports. However, the news from Argentina about wetter weather in the corn-growing areas, which increased the prospects of the crop, capped price gains to some extent. The impact of the Ukrainian factor is likely to underpin prices further. Corn exports from the country totaled 16.2 million mt from the beginning of MY2021-22 through February 7, slightly less than half of the expected export potential. 

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