THE COOLING of grain prices on expectations of a working resolution that would allow exports out of critical Black Sea ports has been knocked on its head by news of a Russian bombing of a grain port in Ukraine.
There had been hopes the United Nations would be able to broker an arrangement between the warring nations that allowed exports out of ports in the Black Sea to help alleviate growing food security concerns.
However, the Russian bombing of the Nika-Tera grain port at Mykolaiv. dashed these hopes, and much of the fall in wheat futures which had dropped by as much as $60 a tonne for wheat on US futures exchanges, were cancelled out by gains in prices early this week.
The bombing means world grain investors are treating the Putin government's claims it would assure safe passage for grain vessels with increased scepticism.
While there are other avenues to the west for Ukraine to export grain there are efficiency problems given rail gauges in Ukraine and nations to the east are different and a lack of truck drivers means it is difficult to move large volumes by road.
On Monday there were steep rises in futures prices both international and locally, erasing the majority of the losses of the previous week
Thomas Elder Markets analyst Andrew Whitelaw said while there were myriad possibilities the overarching premise of the conflict in Ukraine and its impact on the grain trade was relatively simple.
"If grain is allowed to move out of the Black Sea then prices will come back fairly dramatically," Mr Whitelaw said.
"On the other hand if supplies out of those ports are restricted world prices are unlikely to fall too much no matter how much the weather improves in other parts of the world," he said.
"The prices would fall really quickly if there was an end to the conflict or even a guarantee about the movement of grain but the conflict has gone on for a reasonable amount of time now and news like this would not inspire anyone to think it is right on the verge of coming to a resolution."
Tobin Gorey, Commonwealth Bank commodity analyst, said in his Agri-Commodity Quarterly Commodity Update while grain prices would eventually come back there was no suggestion of this happening while the conflict continued.
"The tightening of supplies over the past couple of years has occurred with relatively modest crop losses, with the implication being that consumption has caught up, if not overtaken, production," Mr Gorey said.
He said even though prices were at record levels the odds were still on prices rising further.
"The big rises in fuel and fertiliser prices mean that while prices are high in a historical sense this is not flowing through to profits, so without those profits the expansion needed to produce more grain."
"So despite prices being high, they probably aren't high enough yet to resolve the supply tightness."
Nathan Cattle, Clear Grain Exchange managing director, said events over coming weeks would have a big impact on pricing come the Australian harvest.
If prices can hold through June-July, they generally tend to hold through the back end of the year as northern hemisphere crop conditions are known and more accurately priced into the market.