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Russian warnings over Ukraine deal bring potential Corn and Wheat volatility


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Russian warnings that they may not extend the Black Sea Grain initiative bring the potential for a supply shock. We look at Corn and Wheat just as harvest season takes shape

bg_corn_crop_harvest_377303410.jpgSource: Bloomberg
 Joshua Mahony | Senior Market Analyst, London | Publication date: Tuesday 18 October 2022 

Ukrainian grain exports approaching pre-war levels

The war between Russia and Ukraine has riled markets across the board, but one physical commodity whose supply has been heavily impacted is grain. Russia clearly sees Ukrainian exports as another string to pull in this conflict, although their initial moves to block ports was ultimately resolved with a Turkey -led initiative allowing goods to flow once again. Crucially, we are now finally seeing exports of grains reach pre-war levels, mostly consisting of wheat and corn. Ukrainian supply of those products are important because they represent the world’s sixth largest corn producer and ninth largest wheat producer. The fact that we are seeing production levels return to normal could bring a potential bearish reversal after recent gains. However, Russia are seeking to turn up the heat, warning that they will only renew the Black Sea Grain initiative if their demands are addressed. That will likely include the removal of ongoing restrictions on Russian exports. With the West unlikely to ease restrictions given the implications it would have over funding the war, traders should keep a close eye out for a potential volatility ahead.


Looking at the relationship between natural gas prices alongside Corn and Wheat, we can see that the declining cost of gas and thus fertilizer has provided the basis for lower crops. However, that brings a need to closely follow gas prices as we move through the winter, with the potential for an uptick in the event that storage levels prove insufficient once temperatures drop and demand rises. Conversely, a continued drift in gas prices should see grain prices drift further.

GASCROPS181022.PNGSource: Eikon

We are currently in harvest season, which points towards greater volatility depending on how things play out. Thus far, there are reports of favourable weather conditions, allowing for better output levels. However, it will also be worthwhile watching for sentiment over the extension to the Black Sea Grain initiative.


The Corn chart below highlights how price has been dropping within a bullish uptrend. The ongoing trend of higher lows brings a clear downside threshold to watch, with a move below $6.75 required to bring a more bearish outlook. Until that happens, there is a chance we could see the bulls come back into play.

C-4-hours-2022_10_18-10h23.pngSource: ProRealTime


Meanwhile, Wheat has already broken lower, with the move back through $8.79 support bringing an end to the uptrend that had taken hold from August to October. That break lower brings expectations of further downside, with a rise through 955 required to bring a bullish trend back into play.

W-4-hours-2022_10_18-10h39.pngSource: ProRealTime
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