Global wheat markets remain in a strong downward trend, pressured by news that Ukraine, Russia, Turkey, and the UN signed an agreement to allow bulk grain exports from three Ukraine ports over the next 120 days. However not 24 hours after the deal was brokered, two cruise missiles hit the Odesa port in Ukraine, and further news from Tuesday is that more port infrastructure has been attacked in Mykolaiv. This has resulted in the markets clawing back losses that occurred after the export corridor deal.
Reports suggest there was no significant damage to Odesa from the two cruise missiles, however Ukraine's ability to export grain is still likely to be impacted. The Ministry of Infrastructure of Ukraine reported that the ports of Chornomorsk, Odesa and Yuzhny are expected to be operational within two weeks.
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Interestingly, an initial response about the strikes on Odesa came from Turkey on the day of the attack (Saturday) who stated it received confirmation from Russia that they had nothing to do with the missiles. However, on Sunday, Russia announced its forces had targeted and hit a Ukrainian warship and a weapons storage in Odesa.
After the attack on Mykolaiv, there is now speculation the strikes on the ports are intended to drive up insurance costs for vessels entering Ukraine ports, resulting in less competitive grain offers available out of Ukraine. Meanwhile, the EU and UN have endeavored to ensure punitive insurance premiums are not enacted as part of the export corridor plan.
Understandably, there remains some uncertainty over whether Ukraine exports will go ahead as planned, although Ukraine has reported it intends to push forward. Any further disruptions to Ukraine's ports will continue to fuel uncertainty and consequently global wheat prices in the medium term.
Before the export corridor agreement, Ukraine's exports were capped at 1.5 million tonnes per month for all grains (about 500k wheat) via road/ rail and river. After the agreement, ongoing bulk exports have stronger potential; total grain export estimates are now closer to 4-4.5mt per month (about 1.5mt wheat). Assuming exports are not affected by further disruptions, this could result in about 1mt more wheat entering the market per month.
The market has likely factored in the majority of the bearish news surrounding the Ukraine corridor, recessions fears and larger Russian production. The main uncertainty moving forward is in regard to the pace of Russian and Ukraine wheat exports over the next three months.
Seasonally, the market tries to find a low over June/July as northern hemisphere harvest pressure starts to subside. Weather concerns are apparent across US, Canadian and EU spring/row crop regions. Argentina is also in need of improved rainfall for their winter wheat crop to prevent further crop deterioration.
Post northern hemisphere harvest strength could eventuate if Black Sea exports are sluggish and EU yields continue to decline. La Nina is forecast to return in August/September, which doesn't favour spring/row crop rainfall across the northern hemisphere. The certainty here is that volatility will continue for now.
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