Major global grain producers and exporters Russia and Ukraine remain in a full-scale war with no end in sight and that’s keeping the grain futures markets unnerved. Ukraine’s exports have stopped and there are ideas Russian shipments out of the Black Sea will be disrupted. Global end-users may need to soon find alternative wheat supplies. The war will remain on the front-burner for the grain markets for the near term.

THE loss of product from one of the world’s largest wheat exporters will be impossible to replace and will likely push wheat prices to all-time highs according to grain market analysts.

“It’s significant no matter which way you look at it, both in the here and now and looking further ahead to the northern hemisphere new crop,” said AgScientia principal Lloyd George.

“We’ve previously seen wheat futures push through the US$10 a bushel mark in 2007-08 but that was more in reaction to technical issues and market shorts than fundamental supply and demand.”

“This time, futures are already at those levels and there is scope for them to push higher and cash prices to follow suit.”

Mr. George said the current price rally may push the ceiling as to what customers were willing and able to pay for wheat.

“There are limits as to how high values will go, but there is still room for further rises based on what we’ve seen in the past.”

“You’ve got a lot of the major buyers of Ukrainian wheat and they are very price-conscious, there will be limits as to how high we can go, but we’ve previously seen record highs translating into around $A450 a tonne when we’ve seen export bans in Russia and you would think we will challenge those levels hard.”

Mr. George said in the short term the world market had to adjust without Ukrainian supplies of old crops due to port closures.

“The Ukrainian ports are closed and grain is not getting out.

“Ukraine accounts for around 11 percent of world wheat exports, so it is a big chunk that you cannot just whistle up out of nowhere and that is not even taking into account any potential disruptions out of Russian ports in the Black Sea region.”

Mr. George said further out there were likely to be downgraded in new crop production in Ukraine.

“At the very least there is going to be some disruption now, with the crop coming out of dormancy, with people not attending to crops due to the conflict.”

“At the other end of the scale if things continue to go badly and the crop cannot be attended to or even harvested we may see really big losses, no one knows exactly how it will play out but some sort of disruption is already happening, it’s just to what extent it ends up limiting total production.”

Mr. George said the world market could manage shortfalls to some extent by rationing demand but said nothing could prepare for a sudden shortage of this size.

“We can ration demand and that could give you 4pc at the most but you’re taking out 11pc.

“The price signals are great for the spring wheat crop, but the majority of the northern hemisphere is winter plant, so while people talk up increased plantings it is unlikely to produce the volume of grain you would need to cover the shorts.”

Rabobank agricultural analyst Dennis Voznesenski agreed the loss of Black Sea grain would be impossible to cover.

“The Black Sea region accounts for 34 percent of global wheat exports, and a full-scale conflict between Russia and Ukraine will see exports out of the region grind to a halt, at least in the short term, due to blockages to shipping and the high cost or lack of availability of insurance for vessels,” Mr. Voznesenski said.

He said down the track sanctions on Russia, even if not directly from the North African and Middle Eastern nations that form a large customer block for Russian wheat, would also be supportive of wheat prices.

Mr. George said he did not expect Australian cash prices to directly see the full extent of price gains in the short term due to capacity issues.

“The shipping stem in the near term is booked out, so there is not that port capacity to take advantage of immediate demand caused by cancellations of Black Sea product.”

“There has been a rise in old crop prices, best seen on the Clear Grain Exchange, since the conflict began but the real gains will likely be seen after April when there is currently some excess capacity exporters could book to sell higher-value grain.”

“Previous highs in the Australian cash market have all been a result of massive drought premiums, with a positive basis of up to $180/t, so this year will be different as it is caused by global factors.

“Looking forward, it is hard to see even with the most optimistic outlook regarding the end of the conflict that we are not going to have sufficient disruption for the world market to challenge those figures.”

He said if the prices continued to rise there would be a systemic cutting of wheat from diets, particularly in price-conscious nations.

“We’ll see people eating more rice, in Africa they will eat more sorghum and cassava as people search for more economic alternatives, there is a roof as to how much buyers can afford to pay for wheat.”

Mr. Voznesenski said world markets had skyrocketed since Russia’s aggression towards Ukraine started spooking markets earlier in the month.

“Global wheat prices have already risen 21pc since February 1 this year and – in the very short term – prices could rise another five to 10pc.”

Similar to Mr. George he forecast much higher price rises should the Black Sea new crop be impacted.

“If the conflict continues into July when the Black Sea harvest starts, and sanctions on Russia are implemented, global prices could rise another 61pc from current levels.”

He said this would equate Kwinana, WA APW-grade wheat rising from the current cash quote of $367/t up as high as $425/t in the near term, with markedly higher price rises possible should the conflict drag on.

The capacity constraints at port meant Mr. Voznesenski felt Aussie growers would not get the full benefit of the price gains.

“For Australian wheat prices to more closely follow higher global prices, Australia would need to increase our export capacity.”

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