SASKATOON — Canadian wheat farmers should take a wait and “sea” approach with today’s markets due to shipping turmoil in the Black Sea region, says a leading analyst.
“Probably don’t rush with your hedges right now because I think there is still some upside left,” said Andrey Sizov, managing director of SovEcon.
“But obviously, when we see a reversal, it could be brutal because the market really loves to sell those Black Sea rallies. It has happened many times in previous years.”
Nearby Chicago wheat futures were up $0.88 per bushel or 15 per cent as of midday today compared to the close on June 30.
Kansas and Minneapolis wheat futures have also rallied.
WHY IT MATTERS
Russia is the world’s biggest wheat exporter by a long shot.
The bull market is in response to Ukrainian drones hitting 116 Russian ships in the Sea of Azov over a nine-day period.
“It was mainly tankers and tugboats but also a few bulkers were hit as well,” said Sizov.
It is a shallow sea with predictable shipping routes.
Read Also
The problem escalated when Russia shut down navigation via the Kerch Strait that connects the Sea of Azov with the Black Sea.
Some ships are now travelling through that strait, but risk premiums have skyrocketed, which is limiting traffic.
The Sea of Azov handles about one-quarter of Russia’s grain and wheat exports.
Weight of Russia
Russia is by far the world’s leading wheat exporter. The U.S. Department of Agriculture is forecasting it will ship out 47.5 million tonnes of the crop in 2026-27, which would be 22 per cent of global exports.
This is the start of Russia’s new crop season and exports are low, but the longer the shipping disruptions last, the bigger the problem becomes.
Russia’s peak export months are during the August through December period. The country will not be able to achieve its export potential if shipments through the Sea of Azov continue to be disrupted.
“That volume can’t be rerouted physically to other (port) terminals because those other terminals will be fully booked,” said Sizov.
He doesn’t see any signs of de-escalation in the conflict.
In fact, Russia has responded by ramping up attacks on port facilities in Odesa, where there are three grain terminals that account for more than 90 per cent of Ukraine’s grain and vegetable oil shipments.
Wheat markets have become increasingly volatile as both Russia and Ukraine step up their attacks on shipping and port infrastructure, but farmers are urged advised to not to rush their hedging decisions.
Photo:
Greg Berg
Volumes shrink
The Ukrainian Agri-Council (UAC) reports that exports out of those three ports have dropped to four million tonnes per month compared to the previously agreed to volume of six million tonnes, according to Reuters.
UAC expects exports to shrink further if the intensity of Russia’s attacks continues and no repair work is done.
Kernel Holding, Ukraine’s top grain exporter, has halted operations at Chornomorsk port due to the attacks, and four of the port’s 13 large grain terminals have suspended grain purchases, according to Reuters.
The USDA is forecasting Ukraine will export 14.5 million tonnes of wheat in 2026-27, or 6.8 percent of global trade volumes.
Ukraine has also escalated the conflict by attacking Russian merchant vessels in the Black Sea.
Happenings in the Black Sea region are driving current wheat markets, SovEcon managing director says.
Photo:
Greg Berg
Sizov said this new wave of drone attacks could easily drag on into August or later, which would have huge ramifications for the world wheat market.
“We could easily deduct five to 10 million tonnes from Russian exports in the current season and probably a few million tonnes from Ukraine’s exports,” he said.
That is why Sizov is advising farmers to keep a close eye on developments in the Black Sea region because it is really driving today’s wheat markets.
He feels there could still be substantial upside in the current rally, but any reversal will be sudden and sharp.