Wheat markets gain on Putin comments about grain corridor

Global wheat markets reacted strongly Wednesday to comments on the Ukraine grain corridor made by Russian President Vladimir Putin, with a sharp increase seen in futures prices on exchanges.

CME soft red winter (SRW) wheat futures jumped by 47c/bu to trade at $8.64/bu for the December contract as of 1000 Eastern Time, while Euronext's December wheat contract gained €13.50/mt to €331.25/mt at the same time.

The rise followed Putin's allegation that the West had deceived Russia and the developing world with the UN-brokered grain corridor deal, suggesting most of the vessels that have left Ukraine since the deal was signed have gone to European countries.

This followed similar comments about the grain corridors expressed by Russian Foreign Minister Sergei Lavrov earlier Wednesday.

Putin also said he would talk with Turkish President Tayyip Erdogan about possibly redirecting grains from Ukraine to developing countries.

The comments, which were made during an economic forum in Vladivostok in Russia's Far East, have also caused some uncertainty in the physical market, as trade sources said some sellers decided to step out given the news, while some buyers showed higher interest amid concerns that the deal might be broken.

The deal was signed on July 22 and was agreed for 120 days, meaning that it would end on November 20 unless it is extended. 

Since the signing of the agreement, Ukraine has moved 2.1 million mt of grains, oilseeds, meals, and oil through its deep-sea ports, with at least a quarter of that amount being goods that were stuck in the ports since February, when Russia invaded Ukraine.

The European Union was the top destination for Ukrainian exports under the deal with at least 685,584 mt headed there, but this is far from most of the grain.

It includes 552,087 mt of corn; Ukrainian origin corn is currently the cheapest origin into the EU, where there is a deficit of the crop following the hot, dry spring and summer.

All the ships are obliged to enter Turkey for inspection before entering or exiting Ukrainian ports, Turkey remained the second biggest destination for Ukrainian goods with at least 451,000 mt destined for Turkey, including 144,400 mt of wheat.

Egypt has imported 204,260 mt of grains, including 179,260 mt of corn, while 120,000 mt of corn were loaded to South Korea, the same amount to Iran, and 62,340 mt of corn and 45,000 mt of sunmeal moved to China.

Two wheat shipments have been made under the World Food Program led by the UN, with 23,500 mt heading to Djubutti and 37,500 mt to Turkey to process it into flour and re-export further to Yemen.

Additionally, 51,000 mt of wheat were exported to Kenya and 28,600 mt of wheat left to Somalia.

Ukraine used to be the main supplier of wheat to Djubutti, which imported around 254,204 mt of wheat annually on average for the last five years, 119,700 mt of which on average came from Ukraine.

While Yemen is among the biggest wheat importers worldwide with annual imports of around 3 million mt, the share of suppliers is divided between the US, Australia, Ukraine, and Russia, and so far in the 2022 financial year, Australia has been the biggest supplier amid advantageous freight rates and relatively cheap prices, followed by Ukraine and US.

Grain corridor helps lower prices

While the Russian authorities have alleged the grain corridor does not help world food security, the price trend shows a different picture, as the opening of the ports brought more supply availability and prices have been on the decline ever since the deal was signed.

The price of Russian 12.5% wheat has dropped by almost $50/mt since the first vessel left Ukrainian ports, while Ukrainian 11.5% has lost around $28/mt during the same period, and European origins have fallen by around $28-29/mt on average, and prices even show a slow decline since mid-May when the first talk of the agreement was heard in the market.

Following Putin's comments Wednesday, however, the offer idea jumped by at least $5/mt day-on-day for Russian 12.5% to $315/mt, but trade sources said that sellers were not overly keen to sell at the moment. 

Russian export issues

Russian exports have meanwhile been about 20% lower than last year, with the total figure for wheat during the first two months of the marketing year pegged at 5.1 million mt.

This is despite the fact that the wheat crop is expected to be a record one, with estimates from local agencies of up to 95 million mt in 2022/23.

Early estimates put wheat export at around 43-44 million mt, while around 40 million mt is now thought to be closer to reality. 

Trade sources have suggested that sanctions continue to create issues for the Russian grain trade, as while the export of agriculture products is not sanctioned, the banks that companies work with are, so some payment difficulties remain.

Along with this, there is still an issue with freight availability, which Ukraine also has faced; the number of vessels coming to the region has increased, but the freight is still significantly higher than to other regions due to the risks. 

Russian traders have also said that origination was not going smoothly, as farmers were not keen to sell at a lower price, while the export tax and the strong rouble have limited the space for some movement.

However, as the export tax has been on the decline during the last few weeks, the situation is expected to improve.

Another issue that both countries face is buyers being cautious with Black Sea supply, especially as a number of trade sources said there are issues with opening letters of credit for shipments as the region remains risky.

Demand has also been curbed as the buyers expected further price declines as more wheat becomes available from Ukraine, with the grain corridor working normally and a record crop in Russia potentially weighing on prices.

Recently higher activity has been seen on the coaster size market, however, as freight rates fell, and Russian origin became cheaper than Ukrainian. 

UPDATE: the story was updated with information about additional wheat tonnage from Ukraine to "developing" countries in Africa