An article by: Vladimir Sapozhnikov

It was a hot weekend at the Chicago Stock Exchange. The Wagner mutiny resulted in explosive growth of wheat prices, but positive news from Russia calmed the traders.

Speculations on political and military instability in Russia caused by the coup attempt have shaken the global commodity markets. The futures for September-scheduled wheat have reached the four-month maximum at the Chicago Stock Exchange on Monday, June 26. The wheat prices peaked at 7.65 – 7.70 dollars per bushel. But the Wagner setback calmed thigs down, and by Tuesday, June 27, the quotations ranged from 7.10 to 7.15 dollars per bushel. Just for the month of June 2023, the prices for wheat have grown by 29%, thus setting an all-time record since 2015.

Bloomberg analysts attributed the unrest of the grain market to traders’ concerns over the military and political situation in Russia, the world’s largest wheat exporter. On June 24, after establishing control over Rostov-on-Don, one of the crucial cities of southern Russia, columns of armored vehicles of PMC Wagner headed towards Moscow. President Vladimir Putin labeled the actions of the Wagners “an attempt at a military mutiny.” On Sunday, the military contingent of PMC Wagner returned to their camps on the Ukrainian border, and their leader Yevgeni Prigozhin, upon getting guarantees from Putin and President Lukashenko, headed for neighboring Belarus.

In addition, according to Bloomberg, “markets are experiencing pressure due to the droughts on US farmlands, placing at risk the 2023 grain harvest.” Today Russia is the world’s largest grain exporter. Last year, the harvest of grain and leguminous crops has set a new historical record – 157.7 million tons (of which 104.2 million tons were wheat). Despite the sanctions imposed by the West, in 2022 Russia managed to export 45.5 million tons of grain; furthermore, according to estimates, 60 million tons could be used for export in 2023-2024 agricultural years.

All this causes the political situation in Russia to significantly affect the world markets.

The Kremlin is having doubts about the extension of the “Ukrainian wheat agreement” that expires on July 17. Moscow is blaming the West for keeping only the part of the deal that concerns Ukraine, while Russia gained “little or nothing” from this agreement. At the latest Saint Petersburg International Economic Forum (SPIEF 2023), President Putin stated that “the neediest countries of Africa, the Middle East and Latin America received less than 4% of the grain exported from Ukraine under the agreement sponsored by the United Nations.”

In other words, the political tension influenced the global agricultural markets to a much greater degree than expected. All this is taking place despite the constantly increasing agro-food production: according to the USDA, the US Department of Agriculture, “global production of wheat, corn, and soybeans is at an all-time high, while reserves and consumption are growing as well.” Last May, in the “World Agricultural Supply and Demand Estimates ” (WASDE) report that also included the first estimates of the grain and oil crops for 2023-2024, analysts suggested that next year’s “production will reach its historic maximum.”

During the next campaign that starts on July 1, 2023, primarily the further advance by Brazil and the recovery of the USA and Argentina will support the global corn production that is estimated at 1.22 billion tons (+6% year-on-year), despite the negative forecast on Ukraine.

According to Agrisole, the newspaper of the agro-food sector Il Sole 24 Ore Group, “the outlook is also directed at strengthening the global trade (+6.7%) and consumption (+3.7%) of food, as well as other purposes, including non-food for ethanol production, with the rebound to the ultimate stocks of corn (+5.2%), which is projected to be the highest in five years.,”

Finally, the forecasts for the global wheat trade in the new season (July 2023 – July 2024) indicate more favorable conditions for production that is expected to reach the record level of 789.7 million tons, albeit an insignificant year-on-year growth (0.2%), while consumption is expected to slightly fall by 0.4 percent. There are positive expectations regarding the production development in Argentina, Canada, China, and the European Union, as well as India and Turkey, while the US Department of Agriculture in its first annual forecast projects the crop fall in Australia, Kazakhstan, Ukraine, and Russia. The Kremlin estimates that the grain harvest this year “will unlikely surpass the plan of 130 million tons, which is 27 million below the brilliant results of the previous agricultural year”.

Vladimir Sapozhnikov