Grain prices likely to rise after Russian port attack

Russia has bombed the Ukrainian port of Odessa less than 24 hours after signing a grain export deal.

Australian grain prices could rise after Russia bombed the Ukrainian port of Odessa on Saturday, but the extent of change is hard to predict, experts say.

Russia’s missile attack, which hit port infrastructure just hours after Russia and Ukraine signed long-anticipated deals to allow the safe export of grain, could send global grain prices higher, Rabobank analyst Dennis Voznesenski said.

“Prices will respond to the attack, but harvest pressure will keep them from going all the way back to where they were before talk of this deal surfaced,” Mr Voznesenski said.

Mr Voznesenski said it was surprising for many in the market that the export deals had progressed as far as they had in the midst of Russia’s ongoing invasion of Ukraine.

“This is still an active war zone. This is like saying to someone ‘I’m going to shoot you, but I’ll try not to shoot you in the leg’,” he said.

The market reacted to the Russian attack on Monday with Chicago Board of Trade wheat futures for December up A$14 per tonne to about A$430.

Prices have fallen over the last six weeks as the export agreement progressed, and were down from a high of nearly A$600 per tonne in June.

A fragment of a rocket from a multiple rocket launcher is seen embedded in the ground on a wheat field in the Ukrainian Kharkiv region on July 19, 2022, amid Russian invasion of Ukraine. Picture: Sergey Bobok

Australian traders would be closely watching price rises on the Chicago Board of Trade this week, Mr Voznesenski said, with Australian prices likely to follow the trend with moderate increases.

Thomas Elder Markets analyst Andrew Whitelaw said the extent of any price change would depend on how supply chains reacted to Russia’s attack.

The ceasefire signed on Friday would allow vessels stranded in Ukraine since February to leave the country, but whether shipping companies outside the area would be willing to send vessels to Ukraine to collect grain was another question he said.

“They could be risking their vessels being stranded for weeks,” Mr Whitelaw said.

If exports out of Ukraine were able to progress unimpeded and supply chains were able to resume, prices could still ease slightly, Mr Whitelaw said, but it would depend on whether the ceasefire on vessels was upheld.

“This is going to continue to be a volatile period,” he said.

Tens of millions of tonnes of grain has been trapped in Ukraine since Russia’s invasion began, with the threat of missile attacks sending Ukrainian ports to a standstill.

The deals signed by Russia and Ukraine on Friday, supported by the United Nations and Turkey, aimed to allow the safe passage of ships to resume from three key Ukrainian ports and out via the Black Sea.

Russia’s missile strike threatens the plan, which UN secretary-general Antonio Guterres hailed as “an agreement for the world (that) will bring relief for countries on the edge of bankruptcy and the most vulnerable people on the edge of famine”.

The attack comes as grain harvest is nearing completion in the northern hemisphere. Hot and dry conditions have affected crop yields and quality in the United States and Europe, while Russia’s wheat crop has been reported to be a bumper harvest, with a large exportable surplus likely.