12.5% wheat prices in Russian deep-sea ports decreased by $1 to $332/mt (nearest FOB). Wheat in Chicago and Paris fell 2-4%. The global market is being driven lower by a bumper crop in the Southern hemisphere. Both Argentina and Australia are finishing the harvest of record-high crops.
We remain bearish wheat fundamentally. However, geopolitical risks should be watched closely. Russian-West consultation didn’t bring any results, at least publicly. The US and NATO ignored most of Russia’s proposals.
Russian officials continue to make belligerent statements, the country’s stocks and bonds are being beaten badly. It looks like the ball is back in President Putin’s court; what will he do now?
The tensions could rise further until we see some progress, at least in the form of an announcement of a new meeting. Several Ukrainian state websites were hacked at the end of the week, and Russia seems to continue massive military drills near its western border.
In our view, any open military conflict would provide substantial support to global wheat prices. In a few weeks in March-2014, after Russian forces appeared in Crimea, Chicago wheat futures rallied 20%.
Not many are interested in open Russia-Ukraine or Russia-West conflict. However, things can go out of control of top officials when there are so armed men and tensions keep rising.
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