Black Sea wheat market unmoved by Russia’s troop movements: traders

Global grains traders were closely monitoring the troop movements on Russia’s border with Ukraine, given the two countries’ key roles in the market for wheat and corn, but many participants in the Black Sea market had yet to see any change in trading behavior.

Since late in 2021, Russia has gathered around 100,000 troops along its western border with Ukraine, according to media reports. The two countries are major players on the global grains market and their combined wheat exports account for 23% of global total of 206.9 million mt, according to forecasts from the US Department of Agriculture for the 2021-22 marketing year. Ukraine’s corn exports are 17% of the global total.
US President Joe Biden said on Jan. 19 that he expected his Russian counterpart Vladimir Putin “to test the United States and NATO, as significantly as he can,” adding that Putin would pay “a serious and dear price.” Russia has said its troops are conducting training exercises and denied any intention to invade.

“Chicago wheat, up 7.4% in just two days […] the main driver remains the same Russia/West tensions,” Andrey Sizov, the head of SovEcon research firm, wrote on Twitter Jan. 19. “It’s not Russia/West tensions that are getting more serious, it’s the fact that the market is paying more attention than I expected,” he added.

The tensions have helped to push down the ruble and the hryvnia on the foreign exchange markets, with both the currencies weakening against the dollar by more than 3% and 4%, respectively, in the month to Jan. 20. However, the impact on Black Sea grains prices in the week starting Jan. 16 has been less clear.

“Nothing [has changed]. When someone wants to hide his grains strategy, they will say it’s because of politicians talking about potential war,” said one broker.

As evidence, the broker cited the outcome of a recent tender by Turkey, which is typically the world’s second largest wheat importer after Egypt. On Jan. 18, the Turkish Grain Board bought 325,000 mt of milling wheat, mostly from sellers with stocks in bonded warehouses who were offering at a significant discount to the replacement cost. This means a price less than it would have cost to buy more wheat in Russia and arranged freight. “Would anyone offer a discount if [war] was a risk [to trade]?” asked the broker.

“In Chicago, they have no idea where the Black Sea is,” they added, pointing to the gap between Chicago’s soft red winter wheat contract and the physical market for Russian wheat.

However, one Black Sea wheat trader did say that concerns about the conflict have added to people’s reluctance to take forward positions on the Russian wheat market.

“I don’t expect the market to find liquidity, given the Russia/Ukraine concerns” said the trader. “The market will be supplied nearby. Any deferred position will be tricky. People will ask for a big premium.”

Russia has been under sanctions since its annexation of Crimea in 2014, and Washington has been considering additional measures targeting the country’s largest banks and making it harder to exchange rubles for dollars.

Russia’s state-controlled VTB Bank is a major player in Russian grains market, with control of Demetra, the owner of Black Sea export terminals and the country’s third largest wheat exporter.

The Black Sea wheat market was transformed last year, when the Russian government introduced an export duty, which currently stood at just under a third of the total FOB value for cargoes shipped between Jan. 19 and Jan. 25.

As a result, traders said that there has been less liquidity on the market and people have been reluctant to trade further forward. These two effects would have been observed in the market if there were concerns about an imminent conflict with Ukraine.

Russia’s duty on wheat exports meant that the country’s sellers lost out in some tenders earlier in the marketing year, especially with Egypt’s state grains board. However, aggregate demand from the Middle East was up by a third in MY 2021-22 to 35.9 million mt, after drought cut the region’s production, and Russia has seen a surge in shipments to Iran, which has few alternative suppliers.

Ukraine has already completed most of its exports from the crop that was harvested in summer 2021, with 16.3 million mt of milling wheat shipped from the country between July 1, 2021 and Jan. 17 2022, according to the country’s agriculture ministry.

This was just short of the full total exported the between July 1, 2020, and June 30, 2021. The country’s export terminals typically handle corn exports at in January.

S&P Global Platts

Tags: corn, export, wheat, traders, Black Sea market, border, Ukraine, Russia