Australia: Grain rates rise as Black Sea deal ends

After Russian missile strikes on Ukrainian ports and a decision by the Kremlin to pull out of the Black Sea grain accord to allow agricultural exports sparked a rally, Australian farmers are locking in rising grain prices ahead of their upcoming harvest. This comes after the rise was caused by Russian missile strikes on Ukrainian ports.

The interruption of the key wheat-producing region that is located around the Black Sea might spell disaster for countries that are already hurting from growing costs of living, conflict, and drought, particularly in the Horn of Africa.

According to António Guterres, the Secretary General of the United Nations, this would “strike a blow to people in need everywhere.”

However, for many Australian grain growers, this year may mark the beginning of a fourth year in a row of solid harvests, which have been supported by robust prices for wheat and other grains.

“It’s important to tie in the caveat of not being too jolly because horrifying things are happening right now in the Black Sea,” said Rabobank grains analyst Dennis Voznesenski. “It’s important to tie in the caveat of not being too jolly because of the current situation in the Black Sea.”

“However, this could result in yet another year of potentially increased prices and successful production.”

The Ukraine and Australia are both significant producers and exporters of wheat.

The majority of Australian farmers endured difficult conditions during the drought that lasted from 2017 until early 2020. However, since then, they have seen three exceptional grain harvests, with the most recent one setting a new record.

Late October is the typical time that Australian farms begin harvesting their primary grain crops. At this point, the farms begin locking in the majority of their sales contracts.

However, they have the ability to lock in high prices through the use of mechanisms such as futures markets and by selling a portion of the expected harvest in advance.

Mark Fowler, a farmer in Western Australia who specializes in grains, stated that the industry was keeping a careful eye on all developments in Ukraine.

“I’ve spoken to a lot of people who have taken some price protection; I’ve sold canola in the last few days when the prices were up,” said Fowler, who is the president of the WAFarmers Grains Council. “I’ve spoken to a lot of people who have taken some price protection.”

According to Tracy Blackburn, who helps run an agricultural operation in northern New South Wales that includes wheat and other grains, the instability in the Black Sea should lead to higher demand for Australian grain.

“The flow-on effect is that demand for Australian grain will increase because buyers can actually source it from here, and that should give things a kick-along,” Blackburn said. “This should give things a kick-along.”

Earlier in the year, planting took place in Australia under conditions that were, on average, dry. Prices were also kept low prior to Russia’s withdrawal from an agreement on July 17 that would have ensured the safe passage of grain boats departing from deep seaports in Ukraine.

Following the decision made by the Kremlin to pull out of the Black Sea grain effort that was mediated by the United Nations, Russia has engaged in extensive airstrikes against grain storage and port facilities located in Ukraine.

If Ukrainian grain exporters are unable to negotiate a secure shipping route for grain vessels, they will be forced to distribute their product via routes that have a lesser capacity, such as roads, rivers, and rails.

On Friday, the price of a bushel of wheat traded around the world was approximately $7.70 USD, representing a weekly increase of more than 10%. This price symbolizes a historically high price, yet, it is still lower than the $12 per bushel that it was when Russia invaded Ukraine at the beginning of 2022.

The majority of farmers in Australia are reporting better-than-expected growing conditions compared to what they had during planting, despite the fact that some grain-producing regions in Australia continue to have dry circumstances.

According to the state’s grain business association, the favourable rainfall that occurred at the beginning of June has put the crop back on track for a successful year. Western Australia is an export-oriented state in Australia.

Wheat production from the upcoming harvest in Australia is expected to reach over 30 million tonnes, which is significantly higher than norms seen over longer time periods.

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