Options and Russia Ukraine Grain Deal
Wheat futures immediately fell on news that Russia and Ukraine had signed a deal in Istanbul allowing Ukraine to export the 20 million tons of grain currently stored at the Port of Odessa on the Black Sea. The deal also will also allow Russia to export fertilizers and grain and receive payment through the international banking system. This is good news for nations in Africa, the Middle East, and Asia as looming food shortages threaten famine as well as political and social unrest. The first shipments are due to start in a few days.
Effect of Grain Deal on Markets
The obvious first result of pending grain shipments was that the price of wheat fell the most since May and corn futures hit an eight month low. Sunflower seed futures also fell as normally Ukraine provides half of the world’s sunflower harvest. The deal only includes the Port of Odessa and not the nearby Port of Mykolaiv which is closer to active fighting. For a full return to a somewhat normal situation a deal would need to include protection for corn, wheat and oil seeds like sunflower from farm to port. Nevertheless, the deal promises to get food to those who need it, put money in the pockets of Ukraine, and free up storage space for this year’s winter wheat harvest which is beginning now.
Factors Keeping Prices Up
Although the grain deal provides price relief it will only be in the medium term and prices will not fall to pre-war levels. Demand has been going up for a couple of years due to increasing demand from China. And this year drought conditions are affecting harvests in the Western US, South American, East Africa, and Indonesia. Canada is luckily going to have a bumper crop in winter wheat. The other huge factor is that Russia has yet to show that it will not interfere with shipments. The day after the signing they fired four missiles at Odessa’s port facilities. Two were intercepted and damage from the other two was not critical. Nevertheless, the proof of this deal will be when Ukrainian grain ships arrive safely in Turkey for inspections and pass on their way to their final destinations.
When Will the War End?
To get an idea when the wider ranging effects of the war on markets will begin to let up, we need to look at the war itself. Putin wants to control all of Ukraine or even incorporate it into Russia. Ukraine fooled him (or he simply believed his own propaganda) and is fighting back with substantial help from NATO countries and other allies like Australia and Japan. An apparent goal of NATO is to exhaust Russia, deplete its armaments, and put them in a position where they will not be able to wage such a war for a long time. Thus it promises to grind on until one side or the other achieves a decisive victory. It starts to resemble World War I in that regard. Neither side can give up and neither side has the capacity to drive home a victory. Europe will have a cold winter without natural gas from Russia and Russia’s economy will sink as sanctions continue to bite. High gas and oil prices will keep inflation humming in the US which will keep the Fed raising interest rates and then a recession will ensue. That is what will further drive stocks down.
Not a time to trade options alone. This is a market driven by multiple factors beside the war in Ukraine. China is still pursuing its zero tolerance Covid policy and gumming up the supply chain. Inflation and recession will drive US markets. Look into joining one of the trading squadrons at Top Gun Options where we potentially print money no matter which way the market is going or what is driving it.