Tensions in the Black Sea region between Russia and Ukraine have impacted the dynamics of many different markets in recent weeks and months. Different developments have resulted in potential far-reaching consequences alongside a very real fear of war.

Events around the Black Sea have had direct impact on grain markets. Last November, MATIF December 2022 wheat eased back from the mid-€260s to €243.75/t in mid-January. Shortly after that, the fears of a Russian invasion of Ukraine drove prices back up to €262/t.

The impact on March contracts was even greater due to the tight supply in the current marketing year.

That spike was predominantly driven by fears of an invasion of Ukraine and disruption to Black Sea trade. Since the last week in January, December contracts eased back to the high €240s. That rise and fall was totally driven by geopolitical tensions. As the risk of war lessened, wheat prices weakened.

Trade and supply fears

Both Russia and Ukraine are important exporters to global grain markets. In this marketing year, Russia is expected to export 33mt of wheat and Ukraine 24.5mt. An amount of this must still leave those countries and this might not happen in the event of war. Ukraine is also expected to export 32.5mt of maize, much of which comes to the EU.

For some time now, Russia has acted to slow its wheat exports by imposing a variable export tax. More recently, it imposed an 8mt export quota between February and the end of June. Russian wheat production was impacted by dryness in 2021, so it had less to export.

That tax on Russian wheat exports was supposedly put in place to keep internal prices down to help curb food inflation. Having a tax on exports reduces its competitiveness in that market – or at least that is the objective.

However, wheat is still being exported and shippers in Russia and Ukraine sold wheat to Egypt in recent weeks, presumably in the belief that it will be shipped.

The broader brush

These same geopolitical tensions have also impacted significantly on the price of gas from Russia and this has impacted fertiliser production, availability and price, especially nitrogen.

Some months ago, escalating fertiliser prices triggered many nutrient-producing countries to curtail exports – a move which further impacted availability and price.

Protection of availability for internal production was the main justification cited at the time, to help ensure adequate supply within those countries for their own users.

Russia is particularly important in the nitrogen market and it is said to produce around two-thirds of the world’s 20mt of ammonium nitrate annually.

As well as exporting gas, it also exports a lot of nitrogen fertilisers. However, as recent geopolitical events unfolded and various countries offered support to Ukraine, Russia began to dig in even deeper.

Ammonium nitrate exports banned

Late last week, Russia announced that it was to suspend all ammonium nitrate exports from 2 February through to 1 April. This may just be an added attempt to provide affordable fertiliser for domestic farmers, or it could be a response to other geopolitical events.

However, it is worth noting that the Russian government put in place supply agreements with its nitrogen producers last autumn to keep internal nitrogen prices down for its own producers.

This stated that nitrogen prices in 2022 should not exceed the average price during May to July in 2021. This agreement was to last through to 21 May 2022. The objective was to curb the impact of increasing gas prices on its nitrogen production costs.

So it is difficult to rationalise why ammonium nitrate exports are now being curtailed. Perhaps it is a result of its internal manufacturers availing of the higher priced export markets, but it could also be political manoeuvring. However, that said, its official reason is also tangible.

Russia’s Ministry of Agriculture has reportedly said that the warm winter in southern Russia has brought forward spring planting and that this has resulted in a higher and earlier spring demand for fertilisers.

This has created a higher-than-normal early season demand, which may be short-term.

In brief

  • The ongoing geopolitical tensions around the Black Sea are having a major impact on a range of international markets that impact on agriculture.
  • It was seen as the main reason for the recent uplift in grain prices and the recent easing of tensions has allowed grain prices to ease back also.
  • A range of different actions in the fertiliser market are impacting on supply and prices, but the impact of the short-term Russian ban on ammonium nitrate exports could have an impact for late spring.