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Geopolitical risk in grain marketing

Ag Marketing IQ: The threat of an armed uprising in Russia is a prime example of how uncertainty can roil the markets.

Ryan Fogel, Ag risk advisor

June 27, 2023

3 Min Read
Road sign that says VOLATILITY AHEAD
Getty Images

Last week nobody was talking about Yevgeny Prigozhin and his Private Military Company, Wagner. This week saw grain markets trading higher after the armored convoy of mercenaries marched 400 miles into Russia, stopping only 125 miles from Moscow.  

The massive convoy full of ex-special forces soldiers, tanks and armored vehicles rolled largely unopposed through military checkpoints and blockades. The convoy shot down seven Russian aircrafts before a ceasefire could be negotiated.

Nobody expects a 25,000-strong private army to leave the frontlines of a war and march hundreds of miles toward the Kremlin. The catalyst to the weekend’s events was when Wagner forces were hit by Russian missiles. But tensions had reached a boiling point.

What does this have to do with grain markets? Volatility.

Chicago wheat futures are nearing a 29% monthly gain, the most since 2015. Wheat prices have tumbled since the Ukraine-Russia war started over a year ago, but rose sharply in response to the “Russian Tension.”

When you sit down and discuss your marketing plan, you aren’t discussing the likelihood of a mini coup taking place on the other side of the globe. But it could happen, and if so would have a big impact on grain prices. Grain marketing isn’t just about production and weather. Geopolitics play a big role, and the Ukraine-Russia war is one of the biggest factors, both positive and negative.

That armed uprising – even if it’s just a threat – brings further uncertainty to the future of grain shipments coming out of the Black Sea.

The market has grown complacent with the Russian-Ukrainian war, and wheat prices have dropped significantly. Last weekend’s mutiny brought back concerns over Russian political risk. Recently Russia has threatened to pull out of the Black Sea Grains Initiative, which is up for renewal next month. Reaching a deal will likely be even slower if we see a new leader in Russia.

Prigozhin, Wagner’s leader, tarnished Putin’s strongman image after a near coup in Moscow. Putin’s authority is being questioned, with Prigozhin being the first person in 20 years to challenge him since he took office.

All this volatility is coming as the Russians are set to harvest what should be a large wheat crop. Now the markets must decide how credible the threat is to Russian leadership and what that means for Russian wheat exports. 

The level of uncertainty is exceptionally high right now. And as I talk to farmers, I hear a lot of frustration and hesitation over how to handle a grain market that can swing 25 cents in a day. And it has done this to the upside and the downside.

Things can get stressful if you don’t have a solid plan. If you want to remove this stress and sleep better at night, then find a trusted advisor who can help you come up with a plan that will help minimize the guesswork and the risk.

Contact Advance Trading at (800) 747-9021 or go to www.advance-trading.com.

Information provided may include opinions of the author and is subject to the following disclosures:

The risk of trading futures and options can be substantial. All information, publications, and material used and distributed by Advance Trading Inc. shall be construed as a solicitation. ATI does not maintain an independent research department as defined in CFTC Regulation 1.71. Information obtained from third-party sources is believed to be reliable, but its accuracy is not guaranteed by Advance Trading Inc. Past performance is not necessarily indicative of future results.

The opinions of the author are not necessarily those of Farm Futures or Farm Progress.

About the Author

Ryan Fogel

Ag risk advisor, Advance Trading Inc.

Ryan was born and raised in central Illinois. After graduating in 2010 from the University of Illinois with a Bachelor’s degree in Agricultural Economics, Ryan began his career with a large multinational food/commodity trading firm as a merchandiser of corn and soybeans. Ryan joined Advance Trading in 2012. He enjoys the education and teaching process with his clients in order to help them make better decisions on the pricing of their crops. He believes that education of risk management leads to a better understanding to accomplish his clients’ marketing goals.

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