Commodities Corner: Wheat futures are jumping after Russia abandons Ukraine export deal


Wheat futures rallied on Monday to touch their highest price in more than two weeks, buoyed after Russia halted its participation in the grain deal reached earlier this year that had allowed Ukrainian ships to resume exports via that Black Sea.

Over the weekend, Russia said it was suspending participation in the export of agricultural products from Ukrainian ports, citing an attack on the Crimean Black port city of Sevastopol, which Russia blamed on Ukraine, according to The Wall Street Journal.

“Russia is sending a clear signal that Crimea is their sovereign territory,” said Sal Gilbertie, president and chief investment officer at Teucrium Trading.

The most-active December wheat contract


climbed 32 cents, or 3.9%, to $8.61 1/4 a bushel in Chicago. It traded as high as $6.93 1/4 a bushel, its highest level since Oct. 13, FactSet data show.

“It is still in Russia’s best interest to both abide by and renew the Istanbul grain export agreement because Russia has the world’s largest exportable supplies of wheat and fertilizer, both of which are accessible through the Black Sea,” Gilbertie told MarketWatch. “Russia benefits more from free transit conditions in the Black Sea than does Ukraine, so it would not be a surprise if Russia ultimately agrees to extend the agreement.”

Russia said that Ukraine carried out a “massive” drone attack on the Black Sea Fleet in Sevastopol, damaging one warship, BBC News reported on Sunday.

“Russia is trying all it can to bring Ukraine to heel,” Jack Scoville, a vice president and grains analyst at The Price Futures Group, told MarketWatch. “I think eventually Russia will give in, but they want to control Ukraine and will do anything it can to make that happen, including economic starvation via reduced export capacity.”

Russia and Ukraine had reached a deal in July, backed by the United Nations, to resume exports of Ukrainian grain through the Black Sea for the first time since the Russian invasion in late February.

The deal had been “successful in that it allowed hundreds of trapped ships to leave Ukraine waters and it made the cost of shipping and insurance slightly more affordable across the Black Sea, which benefited both Russia and Ukraine,” said Gilbertie. “The deal mitigated some of the risks of accessing Black Sea grains which calmed grain markets and lowered prices from their postwar highs due to significant amounts of wheat and corn leaving Ukraine.”

The deal was due to expire on Nov. 19.

A barrage of attacks by Russia on Ukraine earlier in October had also led to a rally in wheat prices to their highest since June, as the attacks raised the risk of a disruption to the grain deal.

The Wall Street Journal has reported that the United Nations and Turkey have scrambled to rescue the agreement, and that grain ships continued move in and out of Ukrainian waters in the Black Sea, even after Russia announced that it would no longer participate in the grain deal which had guaranteed safe passage for those ships.

Separately, TASS reported Monday that Kremlin Spokesman Dmitry Peskov told reporters that “in conditions when Russia speaks about impossibility of guaranteeing safe shipping in indicated areas, such deal certainly can hardly be implemented.” He also said it would be “much more risky, dangerous and non-guaranteed.”

Still, Gilbertie expects the grain accord to be extended or renewed in a new form given that it’s in Russia’s best interest to keep Black Sea shipping “viable.” The lack of a renewed agreement would “elevate the risks of expanding the Black Sea conflict beyond Ukraine and Russia, and would not be welcomed by the markets” — especially for wheat, corn and fertilizer.

“If the grain deal is not renewed, the threat of the markets approaching or exceeding their Springtime postwar highs becomes more viable.” said Gilbertie.

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