The Corridor of Uncertainty

The Chicago, Paris and London grain markets have eased and then firmed in tune with news from Russia this last month. The safe shipping corridor from the Southern Ukrainian port that opened in late August saw a tentative start to movements as the first ship loads tiptoed through the corridor at little over five knots per hour. Gradually as the number of vessels and the speed at which Wheat, Maize and Oilseeds began to leave Ukrainian waters commodity prices around the world began to ease. At the end of August UK feed wheat was trading in Yorkshire around £260 per tonne ex farm.

However, last week saw the announcement by one of his side kicks that Mr Putin was not happy with the ongoing grain movements. In his understanding of reality, all the vessels leaving Ukraine were supposed to be going to African countries and developing Nations, where undoubtedly it is greatly needed, but where he also has huge amounts of political support. Support, due mainly to the amount of Russian money that has been poured into the regimes running those countries in recent years. The threat therefore at the end of last week was that Putin was going to close the corridor. Wheat markets rose, trading ex farm at £270 spot – £275 ex farm October. The reality of more than two million tonnes of shipments from Ukraine so far, is that 842K tonnes has headed to Europe, 610K tonnes Asia & Middle East, 450K tonnes Turkey, 400K tonnes Africa, 27K tonnes unknown. The grain corridor deal was initially set to run for 120 days from the end of July.

This last month also has seen Sterling continue to weaken against the Dollar and the Euro. Domestic political and economic uncertainty has weighed heavily on the UK economy and the value of Sterling. Theoretically a weaker Pound should be good for UK commodity prices. With approximately sixteen million tonnes of UK wheat harvested we will need to be a net exporter of wheat in this trading year. Currently though Ukrainian wheat is being shipped and delivered to mill in Southern Spain for less money than we can get Yorkshire wheat to the Humber key side!

This last week also saw the WASDE (World Agricultural Supply Demand Estimates) September report published. The key points in the report were Russian wheat production increased, United States maize yield reduced in line with trade expectations and a larger World wheat production figure. The report argued that larger wheat production would lead to larger wheat consumption. Some analysts have questioned the simplified ‘larger production causes larger consumption ‘argument, noting that a cocktail of economic pressures on consumers could erode consumption. Pressures at home with producers shutting livestock production units because of feed and electric prices. Pressures also as people cut back on the weekly supermarket spend.

Feed wheat at £270- £275 ex farm spot and group 1 milling at £310 ex farm. I think even Geoffrey Boycotts Grandma could hit prices like that for four with her stick of rhubarb and turn a profit. Alternatively gamble on the corridor closing, look upon it at wide long hop. Hit it for six and hopefully sell your feed wheat for £300 per tonne.