Dramatic commodity market reaction to Russia moves on Ukraine

Grain, oil and fertiliser markets markets shot up this morning in reaction to reports of Russian forces attacking in north, south and east Ukraine.

The London May 2022 feed wheat futures contract opened at £255/t, which was £20/t up on last night’s close. By 11.30am, it had climbed to £260/t and was at £255/t an hour later.  

UK suppliers and merchants have withdrawn from the fertiliser market, with global urea prices rising US$150/t by 1.30pm.

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Oil prices passed $100/barrel in early trading, rising more than 8% by 11.30am.

The military action put more than 5p/litre on red diesel this morning, said Duncan Lambert, managing director of Hull-based fuel supplier Rix.

This took the mid-range price delivered to farm to 78.4p/litre, said Mr Lambert. He said that as his supplies were already committed for delivery, he could take orders but could not price them until Tuesday.

“We can’t take the risk,” he said. “We’ve never been here before, the last thing we can compare it with [for the impact on markets] is the Gulf War.”

The fuel market was already nervous about pricing further ahead because of the expectation that a relaxation of Covid restrictions would push up demand for airline fuel, said Mr Lambert.

Ukraine harvest threat

Aside from the potential disruption to trade for two of the world’s largest wheat exporters, there are fears for the 2022 harvest in Ukraine that may result from the action.

Ex-farm spot values opened at about £230/t, but were £250/t by late morning in a minute-by-minute market.

Andrew Hill, grain origination team leader at Frontier Agriculture, said: “We’ve never seen anything like this before.

“Bids and offers will be very wide today. Futures contracts have reached record highs and it is very challenging to know what to do in this market.

“We’re not advising farmers, but if they want to sell, we will give them a price – consumers of old crop still want supply.”

Mr Hill said the action had implications for gas, oil and fertiliser supplies.

“Security of these and food is so important,” he said. “We don’t know what crops could get wasted [as a result of military action].”

Big shocks to markets also occurred when Russia announced a wheat export ban back in 2011-12. Grain futures shot up by about £20/t on the announcement of the ban.

There was also market disruption on the result of the UK’s EU membership referendum in 2016.

“This is completely different,” said Mr Hill.  

At analyst and crop marketing adviser CRM AgriCommodities, managing director James Bolesworth said that commercial trade has been blocked out of many ports in the Azov and Black Sea, which will push demand towards Europe and further afield, leading to higher prices.

“Physical prices are following futures higher, with ex-farm prices in East Anglia nearing £250/t [at 11.15am], some merchants are unable to offer prices due to a lack of buyers, particularly for rapeseed.

“Global grain prices are already at unprecedented levels due to a combination of falling stock levels, supply chain disruption and increased speculator involvement,” said Mr Bolesworth.

“The 2021 season is set to end with the tightest levels of ending stock for wheat and corn in 10 years, the requirement for an above-average 2022-23 harvest leaves very little room for any production issues, let alone a conflict in two of the world’s major producing and exporting regions.”

World trade

In each of the past five years, Russia and Ukraine combined have exported between 50m and 60m tonnes of wheat, accounting for more than 25% of world wheat trade.

Then most important markets for Russia are Egypt, Turkey, Bangaldesh, Nigeria, Yemen, Azerbaijan and Sudan.

Ukraine’s main customers are  Egypt, Turkey, Indonesia and the Philippines.

Ukraine is also a big maize producer, mainly in the north, central, and central-west parts of the country, and is forecast to account for about 17% global corn exports.

Wheat and barley are grown mainly in the southern and eastern regions.

The US Department of Agriculture recently reported that Ukraine wheat exports are forecast at a record 24m tonnes this season, with more than 17m tonnes exported between July and the end of January, from its record 2021 wheat crop of 33m tonnes.