Wheat prices on world exchanges are growing due to attacks on the Danube ports and the suspension of the grain deal

Wheat prices on world exchanges are experiencing a new surge after attacks on the Danube ports, threatening food supplies from Ukraine after the grain deal was stopped. The price of Russian wheat, which rose last week from $230 to more than $240 per ton, may rise to $250-260 per ton. Wheat exports from Russia are expected to set a new record this season. Market participants expect to shift the exchange growth in the cost of contracts.

Average prices for Russian wheat with 12.5% ​​protein on an FOB basis may rise to $250-260 per ton following the increase in quotations on world exchanges, Andrey Sizov, director of Sovecon, predicts. By Monday evening, July 24, quotations for soft wheat on the stock exchange in Chicago grew by more than 8%. Prozern General Director Vladimir Petrichenko calculated that quotes in Chicago increased by about $20, to $278 per ton, and on the stock exchange in Paris – by €17, to €264 per ton. Taking into account some inertia of the Russian market, the average price of wheat from the Russian Federation may increase by $10, to about $250 per ton (FOB), the expert predicts. Kommersant’s source on the grain market also expects prices to rise by $5-10 per ton.

Andrei Sizov points out that global quotes are reacting to attacks by unmanned aerial vehicles on the Danube ports of Reni and Izmail, which led to damage to several grain warehouses.

As the expert notes, attacks on the Danube may be more important for the market than damage to the terminals in Odessa. The Danube has become the main export route for Ukrainian grain in recent months, Mr. Sizov points out. According to him, the extent of the impact of the attacks on the Danube ports on prices can be understood in the coming days.

Vladimir Petrichenko speaks of a general geopolitical aggravation with attacks on the port infrastructure of the Danube and the Black Sea and a drone raid on Moscow. Director General of the Institute for Agricultural Market Studies (IKAR) Dmitry Rylko notes that the damage to the Danube terminals affected a very important distribution channel for Ukrainian grain, which is why the markets react so violently. According to him, this time the volatility may also affect the markets for cash goods, since recent events directly affect the interests of key buyers.

Last week, wheat prices on world exchanges also grew on the news about the suspension of the grain deal, which, among other things, provided for the unhindered export of Ukrainian grain through terminals in the Black Sea.

According to Sovecon, last week the average FOB price of Russian wheat increased by $5.5 to $234-240 per ton, while offers reached $245 per ton. IKAR recorded a price increase of $14, up to $242 per ton (FOB). And according to Rusagrotrans, cited by the industry portal Pole.RF, Russian wheat for delivery in August rose in price by $12.5 last week, to $240 per ton (FOB).

After stops grain deal, analysts noted that Ukraine can fulfill the plan for grain exports this season even without deep-sea terminals in the Black Sea through supplies via the Danube and the EU. But overland agricultural exports from Ukraine are also limited. The European Commission (EC) until September 15 banned the import of wheat, corn, rapeseed and sunflower from Ukraine to Bulgaria, Hungary, Poland, Romania and Slovakia after complaints from local farmers. Ukrainian President Volodymyr Zelensky said on Monday Telegram channel, that the authorities believe in the agreement with the EC and are ready for any scenario, noting that the blocking of exports by land after September 15 “is unacceptable in any form.” A meeting of the NATO-Ukraine Council is scheduled for July 26, where the issue of transporting Ukrainian grain across the Black Sea is to be discussed.

Eduard Zernin, Chairman of the Board of the Union of Grain Exporters, says that the calculations of market participants back in mid-July indicated a level of $240 per ton as an economically justified price for Russian wheat at the beginning of the 2023/24 season. But, emphasizes Mr. Zernin, “one should not confuse the exchange market, where speculators use any informational occasion to swing prices, and the market for physical goods.” “There is a certain correlation between them, but after the attempt to cancel Russian grain, our pricing has become little dependent on speculation on foreign exchanges,” he says.

There is also a revival in the domestic market of Russia. According to Sovecon, the purchase prices for wheat in deep-sea ports in Russia increased from 15.8-16.5 thousand to 16-16.8 thousand rubles last week. per ton.

Selling prices for wheat of the third and fourth classes in the European part of the Russian Federation increased by 225–250 rubles, to 13.17–13.6 thousand rubles. per ton. According to the analysts’ review, prices are supported by strong demand from exporters and a delay in harvesting due to rains. Many agrarians are holding back sales in anticipation of further market dynamics, according to Sovecon. The purchase price index of the Union of Grain Exporters in deep water ports on Monday was at the level of 16.39 thousand rubles. per ton.

Export of wheat from Russia this season may be a record. In July, Sovecon raised the forecast for shipments from 45.7 million to 47.2 million tons, and for total grain – from 57.2 million to 58.9 million tons. In the season that ended in June 2023, the Russian Federation exported 58.3 million tons of all grain, including 46.6 million tons of wheat, analysts say. The expected reduction in supplies from Ukraine and Australia will support the export of Russian wheat in the new season, according to Sovecon. Kommersant’s interlocutor among large exporters expects that the exchange price increase will be able to be translated into the cost of real contracts, and Russian wheat will remain cheaper than European wheat, while maintaining a competitive advantage.

Anatoly Kostyrev