This article was written by Equities Data Analyst Keith Gerstein, Commodity Data Analyst Dennis Ting, and Commodities Specialist Euna Yoo. It appeared first on the Bloomberg Terminal.
Background
Russian drone strikes on Ukraine’s Danube ports of Reni and Izmail underlined an International Monetary Fund forecast that grain prices may rise 10-15%. Yet the impact may be milder than in 2022, as supply chains have had time to adjust.
Bulk carriers are clustered at Danube ports, having abandoned the port of Odessa since Russia pulled out of a deal that allowed Ukraine to safely ship grain through Black Sea ports. These events have led to increasing concerns about global food supplies and access. While wheat futures are up 3% in the past month, they’re still down 9% this year, amid ample supply. Corn lost 19% this year on bumper crops in Brazil and the U.S.
The issue
Bulk carriers have clustered near the mouth of the Danube or at Reni and Izmail since leaving Odessa. Traders need to weigh war in the Black Sea against bumper grain crops in the Americas.
Russia’s exit from the grain deal prompted the U.S., along with more than 90 other countries, to sign a joint communique condemning the weaponization of food, according to U.S. Secretary of State Antony Blinken. Meanwhile, Ukraine is retaliating against Russian shipping alongside efforts to protect Danube and overland routes from attacks.
“Global reliance on Ukraine has decreased compared to the initial stages of the war, so the impact may be milder than before, with marginal impact on inflation,” said Alvin Tai, Bloomberg Intelligence agriculture analyst. “Barley supply may be hit the most. Ukraine should make up 9% of global barley exports this fiscal year versus under 5% for wheat.”
Bank forecasts are well below forward pricing, suggesting analysts are either late in updating their views, are confident of alternative supplies or need convincing of disruptions to Ukrainian exports. Even the highest year-end forecast only matches the forward.
Over the past month, the wheat futures curve rose and also steepened, suggesting prices may keep rising as the supply disruptions are felt. There’s a relatively steep contango between the September and December delivery contracts. The world’s food inflation rate may reaccelerate should sustained higher grain prices buoy costs of staples such as bread and noodles. The global food index rose for the first time in three months in July, and the rice index reached its highest nominal level since 2011.
Tracking
Use Bloomberg’s MAP, NSTM, CPFC, CCRV and ECWB functions to analyze commodity markets.
To check traffic in Ukrainian river ports:
- Type “map seaports” in the command line and select Custom Map: Seaports. The shortcut is MAP SEAPORTS <GO>.
- Type “reni” in the amber box at top left and hit <GO>. Repeat for Izmail. Zoom out.
- Click Vessels to the right. Click the pencil icon next to Type and select Bulk Carriers. Hit Update.
- Scroll down and click Storage Terminals.
- Click Table at top left to see details at the bottom.
For more information on this or other functionality on the Bloomberg Professional Service, click here to request a demo with a Bloomberg sales representative. Existing clients can press <HELP HELP> on their Bloomberg keyboard.
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