Global wheat futures continue to experience extreme volatility amid uncertainty over the proposed grain corridor for Ukrainian bulk grain exports.
The market is essentially trying to figure out if 10 to 13 million tonnes of Ukrainian wheat will be added or subtracted from the world's exportable supplies in the 2022/23 season.
There remain risks to both further downside or a snap back in the market, and this depends on whether an agreement can be made between Russia, Ukraine, and the west.
The Russian foreign minister was expected to arrive in Turkey on June 8 to discuss creating the Ukraine grain corridor.
As of writing, CloudBreak remains sceptical as to whether an agreement will come to fruition, as there are still strong headwinds to be overcome.
In exchange for Russia allowing Ukraine shipping relief, they have demanded the easing of sanctions, whereas the west requires peace in Ukraine before any major headway on sanctions can be made.
Clearing of sea-mines is a slow process and will leave Ukraine exposed.
Additionally, Ukraine will need strong support from NATO members to confirm Russia's adherence to the agreed corridor.
This would all have to happen against a backdrop of Russia making progress in the Donbass region, Ukraine continuing to receive huge weapon support from the west, and western Europe recently applying oil sanctions on Russia.
Headlines surrounding the Ukraine grain corridor come at a time when we're also experiencing northern hemisphere seasonal harvest pressure and improved rainfall across major winter wheat regions of the US and EU.
Since reaching highs of US1280c/bu in mid-May, December 2022 US SRW wheat futures have since broken medium-term support of US1130c/bu and tested longer-term support of US1050c/bu.
A technical break below US1050c/bu would be concerning for the market.
Currently, there is a large inverse in the 2021/22 SA cash market relative to 2022/23 season forward prices (about $A80/tonne).
This contrasts with a relatively flat spot to December US SRW wheat forward curve.
Tight grower stocks and a full shipping stem in Outer Harbor can be attributed to stronger 2021/22 prices.
Whilst a low Australian dollar, high bulk shipping costs and a long period for traders to accumulate is weighing down 2022/23 basis.
Seasonally, in a year without a Russia-Ukraine war, we would expect to see weakness over June with the potential for a rebound into July/August, driven by increased importer demand and lower grower liquidity.
This year is very different; Ukraine could be (for the most part) out of the market.
Global wheat stocks were already extremely tight coming into 2022/23 and we've seen further unwanted production concerns across the US, EU, China and seeding delays in Canada.
Importers have been holding out for northern hemisphere harvest induced price weakness and are poorly covered.
If Ukraine largely stays out of the exporter mix, a post northern hemisphere harvest seasonal rebound could be strong amid poor importer coverage and limited Black Sea exports.
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