Grain prices have suffered sharp declines, with the latest extension of the Black Sea Grain Initiative only part of the reason why wheat futures recently posted their biggest daily decline since February and corn touched its lowest price since 2021.
The Russian Federation confirmed its continued participation in the Black Sea Initiative for another 60 days, António Guterres, secretary-general of the United Nations, told the press on Wednesday. The original deal between Russia and Ukraine, made with Turkey and the U.N., was reached in July of last year following Russia’s invasion of Ukraine to allow the safe export of food and fertilizer. It has been renewed for months at a time.
This is “good news for the world,” Guterres said. “Outstanding issues remain,” and representatives of Russia, Ukraine, Turkey and the U.N. will keep discussing them.
Following the news, futures prices for grains fell sharply on Wednesday, with wheat futures posting a loss of 3.4% for that session, the largest one-day decline since Feb. 24, according to Dow Jones Market Data.
On Thursday, the most-active July wheat contract
WN23,
W00,
touched a low of $6.05 ½ a bushel, the lowest intraday level since May 3. July corn
CN23,
C00,
traded as low as $5.47 a bushel Thursday, the lowest intraday since Oct. 27, 2021 and July soybeans
SN23,
S00,
settled at $13.33 ¼ a bushel, the lowest finish since July 22, 2022.
“The extension is certainly good news,” said Brett Friedman, managing partner at Winhall Risk Analytics, but the “recent price action in wheat, corn, and soybeans seems to indicate that the market anticipated that an extension was likely.”
Prices came off on the news, but “only really resumed and confirmed the bearish trend that was already in place,” he told MarketWatch. “A true shock would have been no extension, which would have led to sharply higher prices as traders reacted to the unexpected.”
He pointed out that commodities, including agricultural commodities, have been on the defensive since mid-April. The Bloomberg Commodity Index
BCOM,
has lost nearly 6% since mid-April, FactSet data show.
Indeed, bearish sentiment was already “currently present in grain markets,” Sal Gilbertie, president and chief investment officer at Teucrium Trading, told MarketWatch. The grain markets have already been burdened by “ideal planting weather in the Northern Hemisphere, much needed rain in South America,” and last Friday’s monthly World Agricultural Supply and Demand Estimates report from the U.S. Department of Agriculture, which predicted large inventory builds in corn.
The USDA report released on May 12 showed the U.S. corn crop projection at a record 15.3 billion bushels for the 2023/2024 marketing year, up more than 10% from last year, citing increases in both area and crop yield.
Wheat and corn are leading the way lower because supplies of wheat are at historically high levels in Russia, the world’s largest wheat exporter, and supplies of corn in the U.S. and Brazil, the world’s two largest corn exporters, are projected to increase “dramatically” this crop year, said Gilbertie. “It seems likely that grain prices in general will continue their trek towards the cost of production now that the supply constraints in markets finally seem to be easing a bit as global inventories rebuild.”
Meanwhile, demand for corn has seen a slowdown, said Darin Newsom, Barchart senior market analyst. That’s “highlighted by recent cancellations of export sales by China,” he said.
On the futures market, July corn broke through previous lows Wednesday, triggering increased selling interest from fund, investment and algorithm traders, and “panic selling from others holding either long futures position or actual cash bushels,” he said.
Read: Why wheat prices hit their lowest in over a year as key Russia-Ukraine grain-deal deadline nears
The “elephant in the room for both corn and wheat is the extension of the Black Sea agreement,” said Newsom.
“I don’t think it is a big deal because Ukraine has little grain to move,” with Russia having allegedly taken most of it over the last year, he said. But “it is possible funds are using headlines to position themselves.”
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