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Grain investors are missing the point over Ukraine

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Investors are missing the point over Ukraine.

Many commentators have been quick to dismiss the threat to Ukraine's grain shipments from the country's crisis, which has seen its southern region of Crimea annexed by Russia.

"In the world wheat market, precipitation is always more important than politics," Casey Chumrau, an analyst at US Wheat Analysts, said overnight, a reference also to the dryness in the US Plains which has also been supporting prices in threatening winter wheat seedlings.

It is true that the situation has not given any cause for alarm among importers yet. But that does not make it irrational for them to seek alternative suppliers for future orders, even if it means paying more.

Reasons for hope

Sure, Crimea itself is but small player in Ukraine agricultural production, bar winter barley, of which it is responsible for about one-third of sowings.

For winter wheat the figure is 6%, and corn and spring wheat 1% or so.

And the region's ports are small players in grain exports compared with the likes of Odessa, accounting for just 7% of exports, according to the Ukraine agriculture ministry.

That it is some reassurance to importers that their orders will be fulfilled for now.

'Putin's goal is Ukraine'

But that does not mean they are justified in assuming that the same will be true in, say, six months' time.

Vladimir Putin, the Russian president, has proved himself an unpredictable, but capable, opportunist, Ukraine has shown itself a country difficult to govern, the Western powers ranged against Moscow as somewhat limp-wristed in their retaliation.

The Ukraine turmoil has not ended with the annexation of Crimea. Already, Russia's prime minister, Dmitry Medvedev, has threatened raise Ukrainian gas prices and to sue the country for $11bn in arrears.

The "senior EU figure" who told the Economist that "Putin's goal is not Crimea. His goal is Ukraine…Ukraine is the jewel in the crown" may, hopes, have been overstating the case.

But it is not unlikely that Ukraine will prove a running sore, as Russia and the West play sanctions tennis.

Paper vs grain

Few outside Russia saw the Crimea invasion coming.

Guaranteeing there will be no worsening in the situation, and no impact on grain shipments further ahead, looks something of a leap of faith.

And it is a leap that grain importers would have to make in keeping their buying programmes with Ukraine going as if the recent turmoil had never happened.

It is OK for traders to handle Ukraine grain supplies with a dose of risk premium or algorithm.

For importers of physical grain, that is not so easy. Their populations need bread, which can't be made out of paper or mathematics.

They are right to switch supplies abroad, or at least to build a stockpile of guaranteed supplies before turning to Ukraine.

Which means that even if the US dryness problem does ease off, as official meteorologists signalled on Thursday, prices will retain a Putin premium, and look unlikely to fall in the West all the way back to their late January lows for a while.


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