Wheat futures erased the Black Sea risk premium that had built since Russia and Ukraine escalated attacks in early July, after a report that Moscow is considering proposals to secure grain shipments through the region. The most-active contract in Chicago fell as much as 2% to $6.125 a bushel on Monday, the lowest level since July 9. Futures had climbed to $7.95 a bushel in early September, the highest since early 2023.
Tensions in the region began to ratchet up in early July, as escalating attacks on ports and vessels disrupted trade in a way that was reminiscent of the immediate aftermath of Russia’s invasion of Ukraine in 2022. Grain shipments from the two agricultural powerhouses — together responsible for more than a quarter of global wheat exports — have slowed to a trickle. The spread of attacks into the western Black Sea, closer to Romania and Bulgaria, has also threatened the region’s fallback routes.
Futures slumped Monday as Interfax reported that Russia is considering proposals to ensure the safety of Black Sea grain shipments, citing Deputy Foreign Minister Alexander Alimov. Moscow is discussing the issue with Turkey and several other nations. “Since the start of the season, global wheat prices have been highly sensitive to developments in Black Sea shipping. Any hint of good news sends prices lower,” according to Dmitry Rylko, general director of agriculture consultancy IKAR.
Wheat also was pressured amid a broader drop in commodities prices after the Brazilian real tumbled on President Luiz Inácio Lula da Silva’s surprise election win. Russian President Vladimir Putin began talks with US envoy Steve Witkoff last week, offering a potential meeting with US President Donald Trump in China. Attacks in the Black Sea, meanwhile, have showed little sign of easing. Still, even if peace prospects materialized, it’s unlikely that trade flows will revert to their old pattern quickly. Many countries that typically rely heavily on Black Sea grain have been forced to turn to other sources, often resorting to longer, more expensive routes. The disruption of grain flows from the Black Sea region has also weighed on crucial food inflation gauges, adding pressure on supplies at a time when extreme weather, trade disruptions and higher input prices have battered farmers across the globe. The United Nations’ index of food-commodity prices extended gains in September, reaching the highest since November 2022. The Bloomberg Agriculture Spot Index, which tracks 10 major products ranging from wheat to coffee, saw its sharpest quarterly gain since March 2022.
Another force weighing on crop prices is the autumn harvests in the Northern Hemisphere, with rebuilding crop inventories helping to change the mood among financial investors. Hedge funds flipped to net bullish on wheat in early September, meaning more were betting on prices rising than falling. But they have since steadily pared those bets, with bearish positions hitting a 15-week high.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing