Black Sea wheat contract marks first trade since June

14 Dec 2022 | Masha Belikova

The Black Sea wheat futures contract (BSW) - listed by the Chicago Mercantile Exchange as a risk management tool for the world's biggest wheat exporting region - reported its first trade on Tuesday after half a year without any activity, trade sources have told Agricensus Wednesday.

The move was seen as a positive sign that showed increasing interest from market traders in managing their risk as market dynamics have became more predictable following huge volatility after Russia invaded neighbouring Ukraine.

The BSW March contract was traded at $313/mt for 5,000 mt, the first trade since late June when the BSW July contract was heard traded at $387/mt for 300 mt and at $387.50/mt for 5,000 mt.

At the same time in June, the August contract was heard traded at $381/mt for 5,000 mt and $382/mt for 500 mt.

“Participants are restarting to express their interest in the swap as physical prices are getting more transparent in the Black Sea region and as Russian wheat is setting the tone, in terms of pricing,” a futures broker said.

Also, open interest for the contract was shown at 300 on Tuesday, with 200 for the December contract and 100 for March.

That also comes along with physical Russian wheat prices starting to be shown in the market, not only for very prompt spot loading windows, but also for later, deferred dates, such as February.

That level of detail in the physical market was almost non-existent just a few months earlier.

It could prove to be another beneficiary of the grain corridor and increased acceptance of the current dynamics, despite the ongoing war and sanctions that are affecitng a number of Russian banks.

The industry appears to have found ways to deal with some of the obstacles that have faced the sector, while the origin remains the cheapest option worldwide - particularly in the face of a record-breaking 100 million mt wheat harvest in Russia.

As such, recent months have reported a recovery in wheat export volumes from Russia to pre-war levels, or even higher levels, with over 4.4 million mt of wheat exported in November.

Beyond the war, Russia's export tax system has also made it very difficult for traders to take positions on market direction, as a weekly update to the tax level means exporters have no idea what levy they could be facing when the contract is due to be executed.

That has focused trading into prompt months, but a planned change to the rule governing the export tax calculation is likely to mean that the tax will be calculated on the day of contract registration on the Moscow Exchnage, rather than the day of customs clearance.

That should give exporters greater understanding of the tax they will face and make it easier for them to plan the export trade.

Meanwhile, the Ukrainian market remains unclear, as inspections continue  to face delays and it is still difficult to trade, as the waiting times and vessel availabilities have to be checked before they can be offered to the buyer.

That can create a wide range of price ideas and deter potential buyers.

The CME-listed contract, which was a breakthrough in agricultural risk management tools when it launched back in 2017, has been a key part of providing hedging and risk management in an otherwise opaque but increasingly significant production region.

The contract settles against values published by price reporting agency S&P Global Market Intelligence, but since Russia imposed export duties and then started the war in Ukraine on February 24, interest in the contract has declined sharply.