Wheat higher on Russia-West tensions, is rally overdone?

Andrey Sizov 24.01.2022

The wheat market rallied 3-5% last week on Russia-West escalating tensions we have been warning about for a long time. The market is concerned that a military conflict in the region could lead to disruptions of grain flows out of the Black Sea.

Currently, we feel that this rally could be overdone. In our view not much changed between Russia and the west during the recent weeks.

Both parties, and Russian first of all, continue to make big statements while discussing some kind of a new big Russia-West deal. Friday’s meeting between top Russian and US officials in Geneva didn’t lead to any breakthrough but also wasn’t a disappointment. Russia expects to receive an official written statement from the US next week addressing Russian concerns. Biden and Putin could talk shortly directly.

There is a chance that kind of new deal could be indeed achieved which will help many parties to report this as a big victory. Putin (“we stopped NATO”), Zelensky (“we stopped Russian aggression”), Biden, and perhaps the EU (“we stopped a war in Ukraine”). If this optimistic scenario turns true, wheat is likely to be under pressure again.

However, if something goes wrong, and we see Russian troops on Ukraine’s territory this week would be just a warm-up for bulls. We could see a 10-20% increase in wheat prices easily as the market will be definitely concerned about what will happen to around 20 MMT of wheat which should be exported from Russia and Ukraine during the rest of 2021/22. The corn also should be supported by this – Ukraine alone has around 21 MMT of corn to export until the end of the season.