Market Morsel: Russian rockets rally wheat

Market Morsel

At the start of the week, I wrote about the grain export corridor from Ukraine. This deal was off, and the market barely had a reaction.

I was surprised, as taking a massive volume of grain off the market should have a big impact on prices. Reducing supply equals higher pricing, which is basic supply and demand economics.

Many thought that it was a case of the boy who cries wolf. Putin showed that no deal meant no deal on Wednesday.

Russian forces attacked the grain-loading infrastructure in Odesa and Chornomorsk (pictures here). This spooked the market and caused a A$33 dollar rise in wheat futures. One of the largest rises since the start of the invasion.

What to note about the situation:

• Russia has stated that grain vessels transiting to Ukrainian ports could be considered military cargoes.
• Ukraine has also retaliated that grain vessels to Russia could also be targeted.
• Getting a grain deal back on the table will take some strong negotiating.

The initial impact of the invasion was that Ukrainian grain wasn’t flowing. There is now a risk that Russian and Ukrainian grain will not flow.

The price reaction experienced in the futures market will not flow through immediately to the physical market.