Wheat at 3-week high as Ukraine port attacks cause supply fear

Countries seeking supply alternatives as Russian attack on Ukraine’s Odesa port threatens grain supplies, featuring a 1.6 percent spike in wheat futures.

Chicago wheat futures rose 1.6 percent to hit a three-week high, supported by growing expectations that an attack on Ukrainian ports after Russia’s withdrawal from a Black Sea export deal will have a longer-term effect on global supplies.

Russian strikes on Ukrainian port areas continued on Thursday, destroying critical export infrastructure and tens of thousands of tonnes of grain, local authorities said, after Moscow warned that ships heading to Ukraine’s Black Sea ports could be considered military targets.

Russia shut Ukraine’s ports after its invasion of the country early last year but allowed them to reopen a year ago under the grain deal, with Turkey and the United Nations supervising inspections of vessels with Russian participation.

The most-active wheat contract on the Chicago Board of Trade (CBOT) added 1.6 percent to $7.39 a bushel, as of 05:16 GMT on Thursday after climbing more than 8 percent on Wednesday.

The market hit its highest since June 26.

Russian President Vladimir Putin on Wednesday accused Western countries of perverting the expired Black Sea grain deal for their own ends, but said Moscow would immediately return to the agreement if all its conditions were met.

Asian millers, which have bought more than 1 million metric tonnes of Black Sea wheat for shipment in coming months, will seek alternatives as attacks on Ukrainian ports after the collapse of a safe passage deal spark longer-term supply risks, traders and analysts said.

“Traders and mills will be looking for alternative sources of supply,” said one Singapore-based trader at an international trading company, adding that they will be potentially looking at sources in Europe and other countries on the Black Sea.

Supply constraints from the key Black Sea region add further uncertainty amid the prospect of dry El Nino weather threatening crops across Asia, exacerbating worries over food inflation.

“The market was hopeful that navies of other countries might escort shipment of goods in and out of Ukraine regardless of Russia not renewing the grain corridor,” said Rabobank senior grains analyst Dennis Voznesenski.

Millers in the Middle East, Africa and Asia, which are heavily reliant on Black Sea supplies, have bought millions of metric tonnes of wheat and corn from the region, which is entering its peak export season with freshly harvested crops reaching the market.