Black Sea Grain Extension Could Sway Ag Commodities

Geopolitical factors stemming from Russia’s invasion of Ukraine last year continue to have a major effect on agricultural commodities. In particular, an extension of the Black Sea grain deal could sway prices.

Russia’s occupation of the Black Sea has been limiting Ukraine from importing commodities. Wheat, for example, has been accumulating in supply, though a Black Sea agreement in July of last year was able to alleviate that supply build-up and address an exacerbating global food crises.

That deal is going to end on May 18, and Russia isn’t making things easy in terms of an extension. Per a Reuters report, “Russia has threatened to quit the agreement on May 18 over obstacles to its grain and fertilizer exports and the four parties discussed U.N. proposals to extend the deal on Thursday (May 11).”

However, there has been news leaking that a deal could be forthcoming if all parties can agree to the terms.

“(The parties) are approaching an agreement on an extension of the grain agreement period,” said Turkey’s Defence Minister Hulusi Akar, per the same aforementioned Reuters report. Turkey and the United Nations were influential in helping to broker that Black Sea deal last summer.

Pivotal Moment for Corn, Wheat Prices

With negotiations for a final deal, traders in the meantime could see opportunities in exchange traded funds (ETFs) that track agricultural commodities. Corn and wheat prices, in particular, could present some price fluctuations to allow for traders to take advantage of the market movement — it could come down to the 11th hour to a finalized Black Sea grain deal extension.

“They (Russia) go right to the end in terms of bluffing,” said Sal Gilbertie, CEO of Teucrium, in an interview with CNBC. “But it’s in Russia’s best interest to keep things running smoothly.”

For getting agricultural commodities exposure via corn, consider the Teucrium Corn Fund (CORN), which tracks three futures contracts for corn that are traded on the Chicago Board of Trade, including 35% second to expire contracts, 30% third to expire contracts, and 35% December following the third to expire. The various contract exposures help the fund limit the negative effects of rolling contracts, especially during a market in contango.

For wheat, consider the Teucrium Wheat Fund (WEAT), which offers an easy way for investors to gain exposure to the price of wheat futures in a brokerage account. Like CORN, WEAT also has futures contracts as its prime holdings.

“Generally, you’re using this as a trading product, in which case you don’t care where it holds,” Gilbertie said. “But a lot of people allocate to grains. [Grains] spend a lot of time trading at their cost of production when there are times of surplus and balance.”

For more news, information, and strategy, visit the Commodities Channel.