Market Morsel: Ceasefire impact on wheat pricing.

Market Morsel

It seems like progress is being made towards peace in the black sea region. This is a good thing, but it does have an impact on markets, which we will go through in this article.

Russia and Ukraine have both agreed to a naval ceasefire and an end to attacks on energy infrastructure. The impact has been felt on wheat markets, with a fall of A$4 overnight, as the risk premium starts to come out of the market.

The ceasefire agreement was only agreed to after Russia made a series of demands. The US will now help Russia restore access to the rest of the world for its grain and fertilizer. This is done by giving access to payment systems, which had been turned off as a sanction during the Biden administration. There will also be assistance for insurance and port access.

The reality is that the war didn’t really stop exports, other than during the first couple of months, as the UN had brokered the Black Sea Grain Initiative. The second chart shows that volumes were higher due to large crops during the war.

Despite the high volumes of exports, there was still a lot of risk in exporting grain, and risk means extra costs. There was always the risk of attacks on commercial shipping, which created large insurance premiums.

Russian and Ukrainian grain will now be more competitive than they have been by reducing the risk of trading in this region. A ceasefire, if adhered to, will reduce the risk that shippers face, and whilst the same amount of grain will likely be exported, it reduces the export cost.

There is little left in the pantry to export from last season, and it has been dry (with some rain forecast) for most of the region. The impact will be felt for the coming crop, but the weather is a bigger concern for them. If they have a poor year, it will benefit Australian producers.

Overall, though, I feel that the two countries were exporting as almost normal, and the impact on pricing of a ceasefire should be relatively minimal.