Wheat futures soared, after Russia targeted Kyiv in missile strikes for the first time since June, exacerbating concerns over the Ukraine war which Amis termed “the main risk factor for grain prices going forward”.
Chicago soft red winter wheat futures for December closed up 6.6% on Monday at $9.38 a bushel. a three-month closing high for a spot contract. At one point, the lot reached $9.49 ¾ a bushel – just 0.5 cents short of the limit allowed by the exchange for a daily price move.
Hard red winter wheat futures for December added 5.7% to $10.24 ¼ a bushel, with Minneapolis spring wheat gaining 4.8% t0 $10.14 ¼ a bushel.
In Europe, Paris soft milling wheat for December closed up 4.7% at E364.25 a tonne, the highest finish in more than three months for a spot contract, while London November feed wheat settled up 2.9% to £293.20 a tonne, the highest sine mid-June.
‘Could be very nervous’
The gains followed sustained missile and rocket attacks by Russia on Ukrainian cities, the day after President Vladimir Putin accused Kyiv of terrorism over Saturday’s explosion on the Kerch bridge.
“US wheat prices are sharply higher on Black Sea shipping concerns after several Ukraine cities were attacked over the weekend,” said Terry Reilly at Fuutures International.
Agritel said that “the beginning of the week could be very nervous with the risk of increased tensions in the Black Sea basin,” and noted the risk premium injected into prices “following the events on the bridge linking Crimea and Russia”.
Market tension is being enhanced by the prospect of the lapsing in November of the 120-day agreement between Kyiv and Moscow to create a safe grain export corridor from three Ukraine ports.
“The agreement on the export corridor signed with Russia ends next month and the question of its renewal is already being asked,” Agritel said.
At Chicago-based RJ O’Brien, Richard Feltes said that traders were “adding war premium back into ag markets as prospects are dim for extending Ukraine’s Black Sea grain export corridor after current agreement expires late November”, and despite United Nations optimism of a deal.
‘The main risk factor’
Monday’s price gains also follow a caution from Amis, the food market monitoring agency backed by the G20 and hosted by the UN, over the importance of the Ukraine war to grain prices,
“The prospect of a protracted and possibly intensifying conflict between the Russian Federation and Ukraine continues to be the main risk factor for grain prices going forward,” Amis said.
“In the recent past, there have been few occasions where geopolitics were such a dominating feature in price formulation.”
Such occasions are a concern in part because of the nature of the price volatility they cause.
“Geopolitical risks differ from other shocks as they tend to be less linear, displaying a sudden onset and lack of predictability in the absence of comparable events that would help determine impact and duration”.
Risk vs price
Furthermore, Amis flagged a reluctance by importers to buy wheat from Russia, which Western powers have targeted with a range of sanctions, although not directly covering food.
“Despite a current discount of 12% of Russian wheat to the next closest competitor (French wheat) some importers clearly show a preference for low-risk/high-price origins rather than the high-risk/low-price Russian execution.
“Thus, grains from the Russian Federation now appear less substitutable with grains from other origins, leading to significant regional basis risks,” besides enhancing the vulnerability of the market “to supply shocks” elsewhere.
Monday’s buying spread to other markets too, with Chicago corn futures for December closing up 2.2% at $6.98 ¼ a bushel, and November soybeans gaining 0.5% to $13.74 a bushel.
The Bcom ag subindex finished 1.8% higher at 69.56, outperforming a market for commodities as a whole which fell by 1.0%, as measured by the Bcom index.