Corn, wheat prices spike as Russia ends the Black Sea Grain deal

Corn and wheat prices jumped on Monday after Russia pulled out of the Black Sea Grain initiative deal. Wheat jumped for the third day straight and reached to a high of $675. Similarly, corn price has jumped to $5.6, ~9% above the lowest level this month.

Black Sea Grain deal

The biggest commodity news came from Russia, where the government said that it will not extend the Black Sea Grain deal. This is an important deal that has allowed Ukraine to export its grains safely through the Black Sea. It was originally reached in Turkey.

Analysts were expecting the deal to expire this year since Russia believes that it has made concessions during the fighting. At the same time, the government and the public believes that the country has not gained too much in return.

Russia has made several demands. For example, it has asked the UN to remove its peace mission in Mali. It has warned western countries against supplying weapons to Ukraine. And last week, the government criticized NATO for offering security guarantees to Ukraine.

Russia’s decision to end the Black Sea Grain deal happened a few hours after Ukrainian forces bombed a key bridge that connects Ukraine to Crimea. As a result, authorities stopped vehicle movements across the bridge.

Watch here: https://www.youtube.com/embed/BcZN5azLFJk?feature=oembed

Ukraine is a major grain seller

Corn and wheat prices, therefore, rose as investors anticipated supply disruption in the coming months. This is notable since Russia and Ukraine are leading suppliers of key agricultural commodities like corn and wheat.

Ukraine is the third-biggest corn exporter after the United States and Argentina. It is also the fifth biggest wheat exporter after Russia, the US, Australia, and Canada. Therefore, there is a likelihood that trade flows in the agricultural market will be disrupted.

Still, there is a possibility that Russia is using the Black Sea Grain deal for negotiation purposes. For one, the deal is in its interest because of the soaring inventories following a bumper harvest this year.

Meanwhile, there are concerns that the ongoing dry weather situation will have an impact on wheat prices. The WASDE report published last week showed that output in most countries like Argentina and Europe will be lower this year. The report said:

“ EU production is lowered 2.5 million tons to 138.0 million, as ongoing dry weather diminishes yield prospects primarily in Germany, Spain, France, and Italy. The forecast for Argentina wheat production is decreased 2.0 million tons to 17.5 million based on revised government estimates of planted area.”

Corn production is expected to continue rising in the coming months because of increased acreage in the US, as I wrote here. Production is also expected to jump in Brazil, Canada, and Ukraine.

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