GRAIN market participants are closely monitoring geopolitical instability in the Black Sea at present, with markets currently heavily focused on the potential threat of Russia invading its neighbour Ukraine.
While the US Department of Agriculture flagged a loosening of the tight world wheat supply and demand balance sheet in its last report, any disruptions to grain exports from the Black Sea would again cause tightness and rising prices.
Malcolm Bartholomaeus, Bartholomaeus Consulting, said there were three major global wheat exporters moving grain via the Black Sea.
"Russia and Ukraine are the two biggest ones but you also have Kazakhstan using Black Sea ports to export grain," Mr Bartholomaeus said.
"Any activity that causes exports to stall will mean importers have to find the wheat from somewhere else until the Black Sea exporters start once again, and given there is no logical alternative that means any disruption could see prices rise again as buyers compete for stocks," he said.
Mr Bartholomaeus said the market was already factoring in some of the insecurity into prices.
"Based on the world supply and demand we are probably over what we would expect, which you would put down to the trade's uncertainty over what is happening in Ukraine."
Tobin Gorey, Commonwealth Bank commodity analyst, said it was a difficult situation for markets to assess.
"If things do go pear-shaped in the region, which is a massive export area, then there would be scope for significant upside in the market, but if the market becomes assured that Russia is not likely to invade then the current risk premium could easily drop out of pricing," Mr Gorey said.
"It is a bit of an all or nothing situation, it is not like a weather event where there are shades of grey it is either happening or not, if there is an invasion then prices will soar and if not then a price drop is likely," he said.
"What we can say, however, is that the market is very concerned about what is happening and watching it closely.
Mr Bartholomaeus said logistics, rather than overall production, were the major concerns with stand-off, caused by Russia not wanting Ukraine to join NATO.
"At this stage it is very much about getting grain out of the region, although if trade channels continued to be disrupted there could be some downside risk to production if fertiliser and chemical could not be delivered to farmers."
He said with the Australian crop in the bin and good prices on offer over harvest he did not expect large volumes remained unsold.
"There is still likely to be some grain unsold which is a bit surprising to me, I would suspect that taking a very good price at harvest is the way to go, but it is not likely to be a substantial volume left unsold and exposed to changes in the market."
Start the day with all the big news in agriculture! Sign up below to receive our daily Farmonline newsletter.
Gregor Heard
Gregor Heard is ACM's national grains industry reporter, based in Horsham, Victoria. He has a wealth of knowledge surrounding the cropping sector through his 15 years in the role. Prior to that he was with the Fairfax network as a reporter with Stock & Land. Some of the major issues he has reported on during his time with the company include the deregulation of the export wheat market, the introduction of genetically modified crops and the fight to protect growers better from grain trader insolvencies. Still involved with the family farm he is passionate about rural Australia and its people and hopes to use his role to act as an advocate for those involved in the grain sector.
Gregor Heard is ACM's national grains industry reporter, based in Horsham, Victoria. He has a wealth of knowledge surrounding the cropping sector through his 15 years in the role. Prior to that he was with the Fairfax network as a reporter with Stock & Land. Some of the major issues he has reported on during his time with the company include the deregulation of the export wheat market, the introduction of genetically modified crops and the fight to protect growers better from grain trader insolvencies. Still involved with the family farm he is passionate about rural Australia and its people and hopes to use his role to act as an advocate for those involved in the grain sector.
