Trade cautious but continuing despite tensions in Black Sea region

25 Jan 2022 | Masha Belikova

Tensions along the Ukraine-Russian border - and the threat of war between two of the world’s leading suppliers of wheat, corn and sunflower oil - have boosted futures prices, but cash market participants have largely played down the impact of Russia’s sabre-rattling.

Still, while most trade sources based in the region are unruffled - trading continues much as usual, with supply and price levels the main concerns, they say - fears are growing in some quarters.

“You can’t ignore that’s the only topic nowadays and makes any trade decision very difficult to make, not to say impossible. I think no one wants to have a big position nowadays until things get clearer,” one trader said.

There has already been a noticeable fall in currency values - the hryvnia has fallen by 4% and the rouble by 5% since the start of January. This is pushing up domestic prices, which in turn is reducing traders’ margins.

“[The standoff] hasn’t yet been reflected in the trade but one of the reactions we see is the increase of the gap between the Ukrainian and the Romanian corn price,” a Ukraine-based trader added. “Plus, it could [cause] issues with banks and insurance coverage

Since the end of last week, Romanian corn offers have firmed to €255/mt FOB CVB, with one trade reported at €252/mt at the end of last week. This is around the same level as Ukrainian corn offers for China.

China is not only one of the main markets for Ukraine but also its offers are usually the highest due to certification issues and because shipment is done via Panamax - a more expensive option that larger ships.

Higher prices and bids have resulted from buyers’ concerns about the Russia-Ukraine situation - they have decided to pay to secure corn from safer origins such as neighbouring Romania, trade sources said.

“It is making trade lines [bank finance] more difficult to secure,” a third trader also said.

Banks are less willing to give credit and insurance premiums are likely to rise given the threat to supply, including the possibility of force majeure.

The biggest concern - one that is widely discussed - is a potential blockage of Black Sea ports, from where almost 29% of world wheat production is exported.

Still, sentiment among buyers in Asia is steady since they still have time and other options to secure wheat supply should availability from those ports become acutely constrained.

Australian wheat for June-July is still offered at relatively competitive prices while Argentina and India - also major suppliers - could cover the gap until the situation in the Black Sea calms down.

Australian ASW with 9% protein for June-July period is offered at around $318-320/mt FOB WA. This compares with Indian 11.5% wheat offers for April at $300/mt FOB and Argentina’s 11.5% offers for April loading at $290/mt FOB Upriver.

“For the time being [buyers] are not really concerned but they are asking questions. Most have covered into April and are looking at India now, but the cash market has shut down that side after the news,” an Asia-based trader said.

“Some sellers are trying to execute earlier to avoid unknown complications, but I didn’t hear anything solid,” another trader said.

Although China is one of the leading importers of corn and barley from Ukraine, Chinese markets sources expressed little concern about the tensions.

US wheat futures have also been rising this week - the US SRW March contract rose by 5.5% and the May contract gained 6% amid the tensions in the Black Sea region and news that the UK and US have pulled diplomatic staff from their Ukraine offices.