Wheat Prices Decline Further After Black Sea Pact Extended

Global wheat prices fell further on Thursday as the extension of a deal to allow Ukraine to export grains through Black Sea ports eased concerns over world supplies.

The two-month extension was agreed on Wednesday, a day before Russia could have quit the pact over obstacles to its grain and fertilizer exports.

The United Nations and Turkey brokered the Black Sea deal for an initial 120 days in July last year to help tackle a global food crisis that has been aggravated by Moscow’s invasion of Ukraine, one of the world’s leading grain exporters.

“Ultimately, it’s great news that the Black Sea Grain deal has been renewed, avoiding the worst-case scenario of a cancellation,” Rabobank commodities analyst Paul Joules said.

“Given that Russia has repeatedly expressed its unhappiness with the deal, the extension came as a surprise to the market, and a result, wheat futures declined sharply following the announcement.”

Wheat prices on the Chicago Board of Trade Wv1 fell nearly 2% on Thursday to a two-week low of $6.25-1/2 a bushel after sliding by more than 3% on Wednesday.

Kremlin spokesman Dmitry Peskov on Thursday called the extension “a qualified result” for Russia and said different scenarios were being worked on regarding easing restrictions on Russia’s state agricultural bank, a key demand of Moscow in renewal talks.

Moscow has been seeking to remove obstacles to the export of Russia’s grain and fertilizer, including the reconnection of its agricultural bank (Rosselkhozbank) to the SWIFT payment system.

Other demands have included the resumption of supplies of agricultural machinery and parts, lifting restrictions on insurance and reinsurance, the resumption of the Togliatti-Odesa ammonia pipeline and the unblocking of assets and the accounts of Russian companies involved in food and fertilizer exports.

Ukraine had sought a longer extension and there remained uncertainty about the future of the pact beyond the next two months which could make farmers in the war-torn country less confident about planting crops this spring.

“Given the short extension, the market will have to continue to deal with uncertainty over what happens next. When the Black Sea Grain Initiative was first implemented, the idea was that the deal would run for 120-day periods,” ING said in a note.

The challenge of moving grain through the war-torn region were highlighted on Thursday by the suspension of rail traffic between, Simferopol, capital of the Crimean peninsula, and the city of Sevastopol, after a freight train carrying grain derailed.

The derailment was caused by “interference by outsiders,” Crimean railways said in a statement.

Earlier, the Baza Telegram channel, which has links to Russian security services, had reported an explosion on a railway line in the region, which was annexed by Russia in 2014.

Tags: Grains, wheat, deal, United Nations, Black Sea ports, fertilizer, Ukraine, extension, Russia, Turkey, export, prices