Despite the strong unlikelihood of an agreement between Russia and Ukraine on exporting the latter’s grain out of its occupied and blockaded Black Sea ports, the suggestion of talks sent wheat futures tumbling over the last week.
Heading into the Memorial Day long weekend in the U.S., the wheat complex made some moderate gains. The July contract for Minneapolis wheat closed on May 27 at US$13.0475 per bushel. Kansas City July wheat finished at US$12.3525/bu. and Chicago wheat wound up at US$11.5750/bu.
When the U.S. markets reopened on May 31, a great tumble ensued. The notion, however faint, of Ukrainian wheat somehow making its way on the global market sent prices careening downward. That Tuesday, Minneapolis lost 57.25 U.S. cents, Kansas City gave up 69.75 and Chicago crashed limit-down 70.
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Turkey, in wanting to be a regional player in the Middle East and the Mediterranean, offered to host Russian and Ukrainian delegations to discuss ways and means of opening up those war-torn ports. The United Nations joined the fray, hoping a deal could be brokered.
The problem is that wheat and grains stuck in Ukraine wouldn’t be able to make their way out any time soon. Ukraine’s ports are either devastated by Russian attacks or sealed off from accessing the Black Sea. On top of that problem, there are countless sea mines floating near the ports’ waters, with many having found their way elsewhere in the Black Sea. A large cleanup job is necessary to get those vessels safely transporting grain to the rest of the world.
Nevertheless, wheat fell hard again on June 1, the start of the new wheat marketing year in the U.S. Minneapolis gave up 50.40 cents, Kansas City lost 37.25 and Chicago shed 46.25.
Two days of such steep losses also put pressure on corn and the soy complex at the Chicago Board of Trade (CBOT). The weight of that spillover also brought down canola prices.
Also affecting the U.S. wheat complex has been the pace of spring planting. By May 29 about 73 per cent of the spring wheat crop across the U.S. had been sown. Minnesota ballooned from a paltry 11 per cent to 53 per cent complete, with North Dakota improving from 27 to 59 per cent. The remaining four major spring wheat-growing states were 94 to 100 per cent done.
But the slow-moving machinations surrounding Ukraine were the main driver. Russian President Vladimir Putin added to the mix with stating he’s open to a deal. However, the big stumbling block is Russia’s assertion that the international sanctions levied against it must be lifted first. It’s highly unlikely the U.S. and other countries actively supporting Ukraine would acquiesce to such a demand.
In the meantime, the harvest of U.S. winter wheat is now underway and Australia is poised to reap a third bumper crop. Before grain can get out of Ukraine, it’s more likely U.S. and Australian wheat will hit the market first.
