US Wheat Prices Soar Amid Suspension of Grain Agreement, Then Reverse Decline... "Increasing Uncertainty"

Closed down 1.17% ahead of the war
"Russia to supply wheat cheaply to the grain market"

After Russia's termination of the Black Sea Grain Initiative, U.S. wheat futures prices, which had surged sharply, reversed and closed the session down by more than 1%. Although concerns over grain supply and demand increased immediately following the agreement's termination, there is analysis suggesting that supply disruptions are less severe than expected due to hopes that the agreement will eventually be renegotiated and Russia continuing to supply cheap wheat to the international grain market.

The international grain market is expected to remain unstable for some time as issues related to the Black Sea Grain Initiative and Russia's Black Sea supply, along with external factors such as China's economic slowdown impacting grain demand, become intertwined.

[Image source=EPA Yonhap News]

According to Bloomberg on the 17th (local time), the price of U.S. wheat futures for September delivery closed at 653.75 cents per bushel, down 1.17% from the previous session. Early in the session, wheat prices surged more than 4% following news of Russia's termination of the Black Sea Grain Initiative, but reversed and plunged before the close.

The sudden reversal in wheat prices is interpreted as reflecting analysis that immediate grain supply concerns are unlikely to materialize. According to AFP, the current timing coincides with the harvest season in the Northern Hemisphere, leading to the assessment that the immediate impact of the grain agreement's expiration is limited. Gauthier Le Molgat, an analyst at agricultural market research firm Agritel, told AFP, "The market is currently in a calm period, so there was little reaction to the news of the agreement's suspension."

Expectations that Russia will eventually rejoin the grain agreement are also increasing price volatility. Over the past year, Russia has used repeated threats to break off negotiations as diplomatic leverage during talks to extend the grain agreement, but ultimately resumed negotiations. Russia is also calculated to find it difficult to sustain a prolonged breakdown in talks due to potential export losses caused by the termination.

Conversely, there is also a forecast that grain supply will not be significantly disrupted as Russia, despite terminating the grain agreement, continues to offer grain at low prices on the international market.

Alan Suderman, a commodities expert at U.S. financial firm StoneX Group, told The New York Times (NYT), "Russia is still supplying cheap wheat to the global market, so there is no shortage of wheat in the international grain market," adding, "The termination of the grain agreement will not immediately trigger a food crisis, but it greatly increases uncertainty."