Market Morsel: Putin the agreement in jeopardy.
Market Morsel
On Friday morning, I briefly discussed the agreement between Ukraine, Russia and Turkey to open up grain export corridors (see here).
The inked deal would stand for 120days, with a ceasefire on attacks on the sea to allow the flow of grain. Merchant ships would be guided past mines by the navy.
The purpose is to get grain to countries of deficit in the middle east and Africa. We had some concerns about this agreement:
- 120 days is not a long time to get logistics back up and running
- This will allow some grain to be exported but potentially limited volumes.
- The war is still raging in Ukraine.
- While the agreement covers sea-based transport, in-country logistics remain a challenge.
- Many men and women are now actively involved in the war effort reducing the labour pool.
- Access to fuel is reportedly a challenge.
- Insurance for vessels.
- Would ship owners be willing to send their vessels into an active conflict zone, and can they get insurance?
So these were my concerns upon initially glancing over the document. What has happened since the agreement has cemented my concerns.
Less than 24 hours after the document was signed, Russian missiles were launched at port infrastructure in Odessa, one of the three ports covered by the agreement.
This is poor form considering the importance of this agreement and reiterates the fears that an agreement with Russia isn’t worth the paper that it is written on.
The attack on port infrastructure will not alleviate the concerns that ship owners have in relation to the safety of their vessels or the underwriters to insure them.
The agreement will however offer some solace to ship owners who have had vessels effectively stranded since February. Will it provide enough comfort for owners to send vessels in?
The market reacted to the Russian attack on the open with CBOT wheat futures for December up A$13/mt.
This agreement is something to watch. If there is no more funny business from Russia, then larger volumes may be exported. Whilst a large amount of this downward risk has already been priced in since May when talks began, it may add a little extra pressure on pricing.
