Posted on August, 3, 2023 at 09:55 am
Canterbury’s arable farmers are keeping a close watch for any upwards movement in grain prices after a Russian missile attack on a Ukrainian port last month.
The attack lifted Chicago Board of Trade wheat prices initially by 8% to US725c a bushel ($NZ423 a tonne).
Russia’s Ministry of Defence warned that all vessels travelling to Ukraine’s Black Sea ports would be considered potential carriers of military cargo.
Estimates vary, but Ukraine normally accounts for about 9% of the global wheat trade.
Federated Farmers arable chairman David Birkett said arable farmers believed the attack overseas would result in wheat prices rising here.
"We live in a global market these days and what happens domestically here is part of the picture, but an increasing part of the picture is the global economy and global wheat market.
"So those rises we were seeing overseas will definitely have an impact I believe on New Zealand."
The local industry did not export milling wheat, but the basis of trading was on import parity and that set the bottom line, he said.
"Those international prices obviously mean the import price goes up, which generally means that our New Zealand price should head in the same direction."
Flour millers and wheat processors would still need to import milling wheat as well as source domestic wheat. It was expected they would have to pay more if prices rose to make up for the shortfall of wheat from Ukraine.
That came on the back of record prices of about $650 a tonne in New Zealand when grain was in short supply at the end of this year’s harvest.
"Obviously, that was a spike which had to be corrected, but the question now is where does that correction fall back to," Mr Birkett said.
"I think these international pricings are probably indicating it’s a bit higher than what the domestic market here in New Zealand thinks its base price is.
"At the end of the day, if we are going to be in a world market we’re in a world market and you can’t chop and change between a domestic market and a world market and that seems to be happening a little bit at the moment."
Rabobank senior grains analyst Dennis Voznesenski said the Ukraine-driven rise was the highest in CBOT wheat prices since a spike in mid-June and before that in February this year.
The latest spike followed a barrage of missile attacks on Ukrainian grain port infrastructure and Russia’s announcement that the flag countries of vessels travelling to Ukraine’s Black Sea ports would be considered involved in the Ukrainian conflict on the side of the Kyiv regime.
This had dashed hopes of external entities protecting Ukrainian vessels, he said.
Grain export terminals and grain storage facilities on the Black Sea appeared to have been targeted and hit by Russia, including at the largest port, Odessa.
Mr Voznesenski said after the Black Sea grain initiative expired on July 17 after Russia’s withdrawal from the agreement, it was initially hoped countries would escort and guarantee the safety of Ukrainian grain vessels moving through the Black Sea.
However, that had become unlikely. Nato countries were so far resisting the risk of a possible escalation of the conflict, he said.
Mr Voznesenski said the rise in overseas wheat prices would likely have a direct impact on local New Zealand wheat import prices.
"The reduced availability of grain from Ukraine has short and long-term implications for the global grain sector.
"In the short term, it means less export availability and during an important time period, Black Sea harvest, when the world relies on Ukrainian grain.
"In the long term, it means more grain stockpiled in Ukraine, which leads to lower Ukrainian prices, lower Ukrainian farm margins and lower planting," he said.