Once again, new events in the Russian incursion into Ukraine have disturbed grain prices on the Chicago futures market. Vladimir Putin announced a suspension to the U.N.-brokered deal to allow Black Sea exports Oct. 29, and prices soared on the Chicago board of Trade.
In early trading Oct. 31, wheat futures were up as much as 64 cents, corn futures were up over 19 cents, touching the “magic” high of $7, and even soybeans were up 231⁄2 cents on leading futures contracts.
The price bumps were in response to the Russian announcement that “they could no longer guarantee the safety of shipping” in the Black Sea. Since the Russians were only guaranteeing safety by not attacking civilian ships, this is an interesting statement.
Some observers cynically observed that they had anticipated the action, not because of drone attacks on Russian military ships 220 miles away in Sevastopol, but because the grain shipment agreement had not benefited Russia. In other words, the deal was good until Russia chose to abrogate it.
At the same time that they used the drone strikes as a reason for ending the agreement, Russia also claimed that all but one of the drones was destroyed.
Shipping agreement
The shipping agreements, made in July, were technically between Ukraine and Turkey, and between Turkey and Russia. Since a significant portion of Ukraine grain exports go to poor nations in Africa, and to Bangladesh, the Russian blockade of ports and the Ukrainian mining of ports was a public relations nightmare. As the agreement progressed, nearly 10 MMT of grain left the country.
After the Russian announcement Oct. 29, no ships sailed Oct. 30. Twelve outbound vessels and four inbound vessels sailed in the mined waters Oct. 31. It was rumored that the 12 vessels would sail without guidance, but the U.N. at this moment is committed to continued shipments of grain.
I must admit that I was wrong about the success of the shipping agreement when it started. I thought there were too many obstacles. Sailors had to be paid a hazard premium, insurance would be exorbitant, and the infrastructure in the ports would have been damaged enough to limit shipping. Apparently, there were enough bucks to be made to move grain.
What the Russians did not get in return was free trade elsewhere. There are some problems when your oil and fertilizer are moved by Liberian freighters with British insurance. There is a firm stance among EU nations that they may freeze in the dark, but they will not be blackmailed.
This resistance comes as they have already closed their nuclear power plants and are dependent upon Russian natural gas. Some nations are already returning power plants to coal firing. The price of natural gas actually declined in Europe last week.
It remains to be seen if the bump in grain prices changes any long-term price objectives. In early overnight trading Nov. 1, December corn futures were up an additional two cents to $6.931⁄2. December wheat futures are unchanged, at $8.931⁄4. Soybeans are not a major Ukrainian crop, but November futures are up 17 cents as this is written in the middle of the night going into Nov. 1.
Not as they planned
To say the war is not going well for Putin is an understatement. Before the invasion, U.S. experts debated how many days it would take for Russia to roll over the poor Ukrainians. Now the world is seeing that the Ukrainians would “rather be dead than red!”
The newsreels show pictures of Ukrainian men loading their families on buses to Poland and then returning to fight. The entire male population has been drafted. The result is an under-reported anti-war movement in Russia.
Early reports were that army units had portable crematoriums so that the Russian people would be spared the spectre of returning coffins. We hear that tens of thousands of Russian men are fleeing the country to avoid conscription. I wonder what an anti-war movement looks like in Russia.
