Last week Russia invaded Ukraine, and agricultural markets moved to extreme levels. Wheat was the leader because of the importance of both Ukraine and Russia in global wheat production and exports. As the invasion unfolded, Ukraine closed all its export shipping terminals, and Russia closed the Azov Sea to commercial shipping.
The first gains for the week came after the long weekend in the United States. Concerns about an invasion built over that weekend, and when the US markets opened on Tuesday, prices rallied towards the highs set in November last year.
Tensions continued to build with Russia withdrawing staff from its embassy in Kyiv. Western nations also began ramping up their sanctions against Russia. The wheat market reacted by taking out the November high and moving to the highest prices since 2012. In $A terms the market moved to the highest levels since 2008, with only seven days when the $A daily close was higher.
During Thursday our time, Russian forces made their move. Wheat immediately rallied with nearby futures locking into a limit up move of 50 USc/bu. That price gain extended from overnight trade in the US into their daytime trading, so that on Friday morning we were looking at a combined three-day rally of $A66.60 a tonne.
Interestingly December futures gained $A51.41/t, perhaps in the first indication that the problems being priced into the market were being seen as nearby, not fully longer term.
These are sharp moves for the wheat market. The only other time we have seen prices moves of this magnitude over a couple of days was back in March 2008, when we saw $A64.70/t added to closing futures prices over a three-day period.
So, last week delivered the sharpest three-day $A rally in Chicago Board of Trade futures on record, and took daily closing $A prices to levels only ever exceeded on three trading days in March 2008 (December futures).
Such sharp price rallies are invariably followed within a day or so, by a sharp price retraction. We saw it in 2008, 2017, and 2020. We saw it on Friday night last week, as profit taking stepped in, fired up by being end of week and end of month.
Where to from here is always the critical question. Volatility is probably the easiest aspect to forecast. We are likely to see more sharp daily moves as sentiment waxes and wanes.
Major importers say that they are not likely to be impacted by a lack of shipping from Russia in the near term. However, if Russian exports and Ukrainian production and exports are disrupted for too long the market will have to react. The price peak may still be ahead of us.
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