After the cancellation of the Grain Deal Russia threatens to attack cargo ships. Ukraine seeks alternative shipping routes. The market’s response is a sharp rise in prices.
Wheat prices on Euronext jumped yesterday. The September front-month contract closed up EUR 19.25 at EUR 253.75/t, its highest level in three months. The situation was similar in Chicago. The September term gained 57 cents to 727.75 ct/bu (239 EUR/t) on the CBoT and is also quoted with double-digit gains in electronic trading this morning.
Yesterday, the deteriorating situation in the Black Sea caused prices to rise early in the morning. After Russia declared that grain ships bound for Ukraine would be considered military targets, prices jumped by almost EUR 10 within minutes. Overnight on Wednesday, Russia again attacked the port cities of Mykolaiv and Odessa from the air. According to US government intelligence, Russia has laid more naval mines in the approaches to Ukrainian ports.
Also worrying is the attitude of Bulgaria, Hungary, Poland, Romania and Slovakia, which want to extend the ban on Ukrainian grain imports beyond 15 September to avoid major market disruptions in their countries. This would not make Ukrainian overland exports impossible, but it would make them more difficult.
Russian President Vladimir Putin yesterday reiterated Moscow’s position to extend the grain agreement once the West meets its five key demands:
- The return of the Russian Agricultural Bank (Rosselkhozbank) to the SWIFT payment system,
- Resumption of exports of agricultural machinery and spare parts to Russia,
- Lifting of insurance and port access restrictions for Russian ships and cargo,
- The reopening of a now damaged ammonia export pipeline from Togliatti, Russia to Odessa, Ukraine,
- The unfreezing of accounts and financial activities of Russian fertiliser companies.
Ukraine establishes a temporary shipping route from the ports of Chornomorsk, Odessa and Pivdennyi directly to the territorial waters of Romania and informs the International Maritime Organisation (IMO). Ukraine intends to provide charterers, ship operators and ship owners with “guarantees of compensation for damage” caused “as a result of the armed aggression of the Russian Federation”. Ukrainian President Volodymyr Zelensky said the grain deal could continue without Russia’s participation, and Ukraine is working on options to meet its food supply obligations. The question remains as to how insurance companies will assess the risk. At present, no policies are being offered for shipments to Ukraine because insurance companies consider the risk to be too great.
On the spot market, prices also rose sharply yesterday. Franko Südoldenburg feed wheat was traded at 234 EUR/t in the evening, up 12 EUR on Tuesday. Hamburg bread wheat for August delivery was up by 4 EUR to 250 EUR/t.