Black Sea wheat higher; Russia-Ukraine tensions remain on the agenda

12.5% Russian wheat prices in deep-sea ports rose $3 to $247/mt FOB last week. This is the first increase in prices after the sell-off which started in early March.

12.5% Russian wheat prices in deep-sea ports increased $3 to $247/mt FOB last week. This is the first increase in prices after the sell-off which started in early March. The wheat market is supported by higher global benchmarks.

May SRW contract closed the week at $6.52/bu ($240mt; +2.0% WoW); French wheat May contract – at E218/mt ($261/mt; +2.3%). The market is supported by dry weather in Northern American spring wheat regions and cold weather in the Midwest. Brazil corn regions remain mainly dry, some rains are moving in parts of Mato Grosso.

Weather conditions remain generally favorable for the new crop in Ukraine and Russia. 

Russia-Ukraine tensions remain on the agenda. We believe that a substantial escalation of the conflict is unlikely. However, if we see tensions rising to 2014 level this could become a bullish story for the grain market. The market could become concerned about potential restrictions for vessels carrying Ukrainian grain from Azov terminals (Mariupol, Berdyansk) and more importantly, we could see speculations that Turkey (a NATO member which recently made a few pro-Ukrainian statements) could restrict access to Bosphorus for Russian vessels putting 90%+ of its grain exports at risk. We remember similar speculations from 2014 and remember that they didn’t come true at that time. Recent rumors about any issues for Ukrainian non-military vessels passing Kerch have not been confirmed by market participants.

A few traders stopped buying wheat during the week. 12.5% wheat bids in deep-sea ports remained at 14,200-14,500 rub/mt (CPT). Wheat bids in shallow ports increased to 13,400-13,700 rub/mt from 13,000-13,700 rub/mt. This, perhaps, could reflect some increase in demand as shallow ports serving small 5K vessels could react faster than deep-sea ones.

We expect to see some increase in export demand on higher prices. At the same time the domestic wheat market is dormant and adjusting to higher demand could take some time.

We expect to see Russian FOB moving further higher short-term.

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