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Wheat and corn volatility ahead as Black Sea Grain deal expiry approaches


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Wheat and corn prices come into focus as Russia consider whether to extend the Black Sea Grain deal

bg_wheat_gettyimages_1166414295.jpgSource: Bloomberg
 

 Joshua Mahony | Senior Market Analyst, London | Publication date: Tuesday 21 February 2023 

Putin proclaims victory as Russian Wheat exports surge

Russia has somehow managed to dramatically increase their wheat exports according to President Putin in today’s wide-reaching address. The fact that the country has produced previously unthinkable levels of output will undoubtedly have much to do with their military operation undertaken over the past year. Ukraine is a particularly important country from an agricultural perspective, accounting for 12% of all corn exports and 9% of the wheat exports.

Ukrainecommods21223.PNG

While those two markets have experienced plenty of volatility since the inception of the war, the Russian influence is different across the two countries. That comes down to the location of the regions being controlled as we can see below. Russia currently dominates the Eastern regions, spanning from Kherson to Luhansk.

Russiacontrolmap21223.PNG

Black Sea Grain deal renewal comes into view

Part of the reason we have seen some stabilization comes down to the fact that Russia ultimately signed the Black Sea Grain deal which allowed Ukrainian exports to leave ports unhindered. That comes back into question over the coming month, with the agreement due to expire on 18 March. That could yet spark a fresh bout of volatility should we see signs of a potential breakdown in talks.

Wheat

Putin has focused on Wheat for a reason, with Russia having overtaken a region of Ukraine that accounts for roughly 20% of their Wheat production. The image below highlights how Wheat production is heavily weighted towards the East, which means that output will flow into maintain Russia rather than out of Ukrainian ports. In any case, it is notable that the current conflict zones are in the middle of this key production zone, bringing the potential for further volatility in prices going forward.

Ukrainewheatregions21223.jpg

Despite the initial volatility seen as the Russia-Ukraine war sparked supply concerns, we have seen things settle down since. Traders should keep a close eye on Black Sea Grain deal as a potential spark of volatility ahead. For now, we are seeing price head lower on news of record Russian output. Coming off the back of a rise into the $8.01 resistance level, there is a chance we see price head lower towards the key $7.20 support zone. To the upside, a break through $8.01 resistance level would provide the basis for a more protracted move higher.

W-Daily-2023_02_21-13h44.pngSource: ProRealTime

Corn

Corn prices have been less impacted by the Russian invasion, with production typically taking place in central Ukraine. However, with the grain deal renewal key to allowing continued Ukrainian exports, any inability to maintain that deal will likely have a particularly notable impact on corn exports.

Ukrainecorn21223.jpg

The daily chart highlights how we have seen corn consolidate into a symmetrical triangle formation following a strong December rebound towards the 76.4% resistance level. A push through this $6.87-6.91 zone would bring about a bullish continuation, signalling a likely push up towards the $7.09 region. To the downside, a move through $6.67 support would raise the likeliness of another move lower to build on the October/November selloff.

C-Daily-2023_02_21-14h03.pngSource: ProRealTime
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