By Ketki Saxena
Investing.com -- Wheat futures surged by as much as 9% in Chicago on Wednesday, July 19, 2023, as tensions between Russia and Ukraine escalated following the suspension of the Black Sea grain deal earlier this week. This surge is poised to mark the highest settlement for wheat futures in three weeks.
The conflict began to affect grain exports when Russia's defense ministry issued a warning on Wednesday that all new vessels headed to Ukrainian ports from Thursday would be considered as potentially carrying military cargo. This move increases the military risks in the region and could further hamper Ukraine's ability to restart exports via the Black Sea.
"Ukrainian farmers' crops are coming to harvest at the very time when their export capacity is being shut off," said Michael Magdovitz, a senior analyst at Rabobank in London. He further added that while it was unlikely that the grain deal would continue, this move escalates the situation further after several previous escalations.
Ukraine's Black Sea ports are crucial for its grain sales abroad and historically account for the bulk of its shipments. While Ukraine can still ship grain by river, road, and rail, it is more cumbersome and expensive than through its deep-sea ports. The closure of the corridor could slow down the next crop getting to market.
It was also reported that Russia has bombed an Odessa port in Ukraine for the last two days, marking an escalation in hostilities between the two nations. "The war is escalating — making any attempts to get Russia involved in a Black Sea grain deal again more and more remote," said Jack Scoville, vice president of The Price Futures Group.
Scoville also noted that it is increasingly unlikely that any ship owner or insurer would take the chance on any passage of Ukrainian grain through the Black Sea, further restricting world access to wheat from both Ukraine and potentially Russia.
This rise in tensions follows Russia's announcement early this week that it was pulling out of the Black Sea Grain Initiative, a deal brokered by the United Nations and Turkey in July of last year to help supply global markets with food and fertilizer. The two nations have been at war since Russia invaded Ukraine in February 2022.
In Wednesday's trading, the most-active September futures contract for soft red winter wheat rose 52 1/2 cents, or 7.8%, to $7.23 1/4 a bushel in Chicago. Meanwhile, December corn traded at $5.49 1/2 a bushel, up 15 cents, or 2.8%.
Despite these developments, Darin Newsom, Barchart senior market analyst, noted that there is currently "no sign of increased demand for U.S. wheat supplies," but this could change depending on how the situation evolves.