Commodity market turmoil and uncertainty over Russia-Ukraine war continue

The market turmoil as a result of the Russia-Ukraine action continues, with UK May 2022 feed wheat futures at £298/t at lunchtime on Friday 11 March, having breached the £300/t mark several times this week.

Some grain traders have suspended their weekly reports as a result of the volatility being seen in the main markets, with UK ex-farm rapeseed values shooting well past the £700/t mark midweek.

There is growing concern not only at the trade flow disruption caused by the conflict, but also the social and political implications of strongly rising food prices across the world.

USDA report cuts export forecasts

This week also saw the release of a key US Department of Agriculture (USDA) report that cuts the estimate for Ukrainian wheat exports this season by 4m tonnes and by 3m tonnes for Russia, to 20m tonnes and 32m tonnes respectively.

See also: What are your rights when farmland is flooded

“Ukrainian ports remain closed and although exports via rail are expected to continue, they will be lower volumes in comparison to ships,” said AHDB Cereals and Oilseeds.

“While Russian ports remain open, some say that shipowners are cautious about sending their ships to the region.”

Partially offsetting Black Sea export reductions in the USDA’s World Agriculture Supply and Demand Estimates (WASDE) was a rise in forecast Australian and Indian wheat exports.  

Maize

Maize exports from Ukraine (normally accounting for 14.5% of global maize exports) were forecast by the WASDE report at 6m tonnes lower than previously predicted, at 27.5m tonnes.  

Sun oil

Ukraine and Russia are key players in global sun oil markets, points out AHDB: “Collectively the countries account for around 58% of global sun oil production and around 76% of global exports (2016-20).

“The USDA has trimmed its export forecast by 1.1m tonnes combined.”

“As a result of these cuts, availability of these commodities is potentially at risk. Most commodities will likely remain supported at least in the short term.

“Considering many of the cuts are as a direct result of the Russian-Ukrainian war, if things were to subside there, we could see the support soften. However, as things stand, exports from this region for wheat, maize and sun oil will likely remain disrupted.”

US futures up 55% in a month

Commodity analyst CRM said that the Chicago wheat futures market is up 55% compared with month-earlier levels, while European wheat has risen 41% and UK wheat futures by 36%.

“The market was clearly caught out by Russia’s invasion of Ukraine,” said CRM. “With funds [speculators] net short on wheat there was a scramble to square positions, causing multiple limit up days and surging global prices.

“For now the panic seems to have subsided and markets have stabilised or corrected lower for wheat.”

Despite that correction, markets remain far higher than two weeks ago and big questions remain over Ukrainian spring plantings and even winter plantings.

Major importers are already making plans to fix alternative supplies of both grains and fertiliser, said CRM.