Uncertainty over deal to get wheat supply out of Ukraine adds volatility

Wheat and corn prices for the near and medium term are all about supply.

The trouble is, there is plenty of wheat in Russia, but there are few countries who want to be seen buying Russian wheat. What’s more, the uneasy trade corridor accord between Ukraine, Turkey, and Russia is providing very little assurance to the global market.

In this interview recorded Tuesday, Nov. 1, Jim McCormick, co-founder of AgMarket.net,  says that there are definitely unanswered questions about the logistics deal signed back at the beginning of the summer between the three countries.

The accord states that Turkey will approve shipping vessels to assure Russia and Ukraine that the ships are not carrying weapons, and then the ships can go around the world, moving food commodities. The accord, which is set to expire on Nov. 19, was working reasonably well until this past weekend, when Russia said it was backing out of the deal. That moved wheat prices higher, but they have since dropped with word on Nov. 2 that the deal is back on for the time being, with Russia back on board.

McCormick says Putin’s next move will have a large impact on the tone of the wheat market going forward.

“Putin is walking this political line, in my opinion, you know, he opened the grain corridor, because he wanted to essentially look like, ‘Hey, I’m not a bad guy, OK? I’m not trying to starve the world.’ But the reality is, if you look at what he’s done, the last couple of weeks, it looks like he’s going more of a scorched earth type of policy,” he says.

And if that’s the tone, stopping grain movement would hurt Ukraine now and significantly impact next year’s crop potential. All told, the worst case scenario (for supply) could mean eight to nine million metric tons of wheat off the world market, and 10 to 11 million metric tons of corn off the world market, McCormick says.

There is wheat to be bought and moved, he adds, but it’s in Russia — and that’s an issue for global supply.

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