Black Sea: Geopolitical Impact on Agricultural Markets

Geopolitical factors stemming from Russia’s invasion of Ukraine last year continue to exert a major influence on agricultural commodities. The potential extension of the Black Sea grain deal emerges as a crucial determinant of prices.

The occupation of the Black Sea by Russia has restricted Ukraine’s ability to import essential commodities. It resulted in an accumulation of wheat supplies. However, the July Black Sea agreement of the previous year helped alleviate the supply build-up. Besides, it definitely addressed the worsening global food crisis.

Obstacles Caused by Russia’s Reluctance

As the May 18 deadline for the deal’s expiration approaches, the prospect of an extension becomes uncertain. Russia’s reluctance to cooperate makes things extremely difficult. In a recent Reuters report, Russia threatened to withdraw from the agreement on May 18, citing obstacles related to grain and fertilizer exports. On Thursday, May 11, the four parties involved in the agreement discussed U.N. proposals to extend the deal.

Nevertheless, there are indications that a new agreement could be reached if all parties can find common ground on the terms. Turkey’s Defense Minister Hulusi Akar stated, “The parties are making progress towards extending the grain agreement period,” according to the same Reuters report. Turkey and the United Nations played influential roles in facilitating the original Black Sea deal last summer.

Uncertain Future: The looming expiration of the Black Sea grain deal

This uncertain situation represents a pivotal moment for corn and wheat prices, with the outcome of the negotiations expected to have a direct impact on these crucial agricultural commodities. Traders in the market are closely watching for any price fluctuations that could arise during the final stages of the Black Sea grain deal extension.

Sal Gilbertie, CEO of Teucrium, noted that Russia tends to employ strategic bluffing tactics until the last moment in negotiations. However, it is in Russia’s best interest to ensure the smooth functioning of the agreement.

Amidst these negotiations, traders can explore opportunities in exchange-traded funds (ETFs) that track agricultural commodities. Corn and wheat prices, in particular, may experience price fluctuations that can be leveraged by traders during this period.

Traders anticipate significant price movements for Corn and Wheat

For exposure to corn, the Teucrium Corn Fund (CORN) offers a suitable option. This ETF tracks three futures contracts for corn traded on the Chicago Board of Trade, diversifying its holdings to mitigate the negative impact of rolling contracts, especially during market contango.

Investors interested in wheat can consider the Teucrium Wheat Fund (WEAT). This organization provides an accessible avenue to gain exposure to wheat futures prices within a brokerage account. Like corn, wheat primarily holds futures contracts as its underlying assets.

While these ETFs are commonly used for trading purposes, they can also be utilized for grain allocation strategies. Grain prices often hover around the cost of production during periods of surplus and balance.

As the agricultural market awaits the outcome of the negotiations, the resolution of the Black Sea grain deal extension holds far-reaching implications for global food supplies, market stability, and the geopolitical landscape in the region.

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