Russian threat sends grain markets soaring

HIGH STAKES: Ukrainian soldiers will be on high alert after Russian troops entered two of the country's eastern regions. Photo: Shutterstock.
HIGH STAKES: Ukrainian soldiers will be on high alert after Russian troops entered two of the country's eastern regions. Photo: Shutterstock.

AFTER weeks of closely watching escalating tensions between Russia and Ukraine grain markets have reacted to the news Russia plans to send troops into eastern Ukraine by rallying strongly.

Using a leap of logic in recognising two of Ukraine's eastern regions, Luhansk and Donetsk as independent nations that have agreed to have Russian troops on their territory, the Russian government claims to have not invaded Ukraine, however the move has been interpreted markedly differently elsewhere.

Ukrainian allies, including the United Kingdom and the US were quick to implement strict economic sanctions on Russia as global markets watched on nervously.

In grains, it was futures prices, rather than cash prices that moved the most.

"There is a lot of liquidity in the futures market and people can take a position, it is not like you have to take possession of a physical tonne of wheat so things move faster," said Market Check head of strategy Nick Crundall.

Mr Crundall said the benchmark Chicago Board of Trade wheat futures contract had gone close to rising by the maximum amount on Tuesday as news of Russian president Vladimir Putin's speech justifying the move into Ukraine broke.

He said the potential strife was in a region critical for global grain trade.

"If you were to pick two neighbours to have a dispute that would influence the wheat trade the most Russia and Ukraine are right up there," Mr Crundall said.

"Russia is the second biggest exporter in the world and Ukraine the fourth, so there is a big impact there, then you look at others using the Black Sea to export, such as Kazakhstan and Romania, which may also be disrupted as a result of the dispute."

Mr Crundall said there had been no disruption to critical Black Sea port infrastructure as yet, but said concerns would grow.

"We've seen in recent wheat tenders around the place, such as the Egyptian government tender, the traders are still confident to sell wheat ex-Black Sea so they obviously have the confidence they will be able to execute, at least in the short term, so that is a positive, but depending on how this escalates there could be disruptions."

Russian wheat export prices have been falling throughout 2022 in contrast to global wheat prices as the potential conflict weighs heavily on potential buyers.

The sanctions declared on Russian goods in Europe and the US are unlikely to impact Russian wheat sales in the short term, with much of its grain going to price conscious customers in Africa and the Middle East already concerned by high values for the cereal.

Mr Crundall said Australian cash prices were beginning to creep up, depending on the port zone.

"In Western Australia we saw a lift of $10 a tonne for APW wheat early this week, but in Newcastle there was only a gain of a couple of dollars, it depends on the logistics in each port zone at present."

He said the current situation would be strongly positive for prices for Australian grain growers.

"Looking outside the moral issues and obviously no one wants war, but from a financial perspective this news will be a boost to grain growers."

He said there was still some old crop that remained unsold that farmers would be able to sell at higher values, while there are also opportunities to lock in some of the new crop at good values.

"We would recommend not getting too committed one way or another given the uncertainty surrounding the situation, there could be peace talks and things would fall away quickly or it could escalate further, no one really knows.

"However, if you do sell a little bit of new crop and it ends up being the cheapest you do sell, then that's a wonderful problem to have, given the historically high prices on offer at present."