Russia out of grain exports: Does it affect the price?

Grain markets opened the week reacting moderately to the suspension of Russian exports through the “Black Sea corridor”. According to consultancy AgResource Brasil, the reaction was “adequate”: “There is no doubt that some measure of risk premium is necessary, but the perceived discomfort in global trade flows is much calmer than what was demonstrated in February”.

According to them, Ukraine will be able to work to allow currently loaded ships to sail with the help of Turkey and the United Nations (UN). Ukrainian exports were already expected to be lower, and the market does not believe Russian exports will drop to zero as prices have attracted buyers in Africa and the Middle East.

AgResource believes there is more wheat than corn at risk of not finding the world market relative to current USDA (United States Department of Agriculture) commercial grades. “In addition, the loss of wheat production in the Southern Hemisphere and the drought in the US Plains add to the concern”, they add.

According to a report by analysts Carsten Fritsch and Thu Lan Nguyen of German bank Commerzbank, there are three reasons why prices rose less than when Russia invaded Ukraine. The first is that corn and wheat prices are already trading at higher levels because of the Russian invasion, which already signals a tight supply outlook.

Second, there was already speculation that Russia might not renew the agreement to export its grain – a fact that had already been priced in. Finally, with Turkey’s help, the UN intends to intervene to maintain Ukraine’s exports, even without Russia.

“Furthermore, the Russian ministry stressed that it was not revoking the agreement, but only suspending its own involvement. The G20 countries will likely pressure Russia – at the latest during their November 15-16 summit – to resume the deal, meaning there is still a glimmer of hope that Ukraine’s grain exports can
continue”, points out Commerzbank, according to which this is the main justification for prices not rising excessively, at least for now.

pessimistic scenario

On the other hand, the situation may change. “If attempts to persuade Russia to come back on board fail, or even if Russia attacks Ukrainian grain ships, a substantial increase in grain prices is likely,” analysts at the German bank project.