“It is a surprise that Russia is not renewing the deal because Russia exports nearly three times more wheat than Ukraine,” Sal Gilbertie, chief executive officer at Teucrium Trading, told MarketWatch.

Kremlin spokesman Dmitry Peskov told reporters on Monday that the Black Sea agreements were no longer in effect as the part of the deal that concerned Russia had not yet been fulfilled, according to the Russian state news agency TASS.

As soon as the Russian part of the deal is fulfilled, the Russia side will “immediately return to the implementation of this deal,” Peskov said, according to TASS, noting that the decision was announced before the most recent attack on the Crimean Bridge.

Following the news, wheat futures climbed by nearly 6% to a session high from the day’s lowest level, but have since moved down from Friday’s settlement. Early Monday afternoon, soft red winter wheat for September delivery WU23, 0.11% W00, 0.11% traded in Chicago was down 8 ¼ cents, or nearly 1.3%, at $6.53 ¼ a bushel after trading as high as $6.89 ¼.

Most-active December corn futures CZ23, 0.49% C00, 0.49% fell 6 ¾ cents, or 1.3%, to $5.07 a bushel, while November soybeans SX23, 0.31% S00, 0.31% tacked on 4 cents, or 0.3%, to $13.74 ¾ a bushel.

Russia’s decision is “important as both Russia and Ukraine are major corn and wheat exporters,” and both export other goods as well, said David Maloni, president of food service supply chain consulting firm Datum FS.

The issue may be resolved in the coming days, he said. If not, “it would be more disruptive abroad than in the U.S.”

‘Black Swan’ possibilities

The market had been considering the potential that Russia would suspend the grain deal. Since the agreement was reached a year ago, Moscow has repeatedly threatened to end it unless the West facilitated its own exports of food and fertilizers.

The futures market anticipates events and that is exactly what it has done — prices rallied up to the actual cancellation of the agreement, and has then sold off in Monday afternoon dealings, said Stephen Nicholson, RaboResearch global grains and oilseeds sector strategist.

Still, by not renewing the deal, Russia is “potentially opening itself up to retaliatory attacks on its export infrastructure or merchant ships by Ukraine and others, which could upend the export of literally all commodities out of the Black Sea including oil and fertilizer,” said Teucrium’s Gilbertie. That’s a “major gamble on Russia’s part to extract concessions from the West, but withdrawal from the deal opens up an array of Black Swan possibilities for global commodity markets.”

If Ukraine cannot export its products via the Black Sea, Ukraine or someone else could “potentially begin to target Russian ships in the Black Sea in a bid to disrupt Russian exports,” he said.

Given the fact that Russia is the world’s second largest oil exporter and that almost half of its oil exports are seaborne via the Black Sea, “any spillover of hostilities into the trade waters of the Black Sea could have major implications for grains, oil, oil products, and fertilizer markets — which could impact commodity markets and the global economy itself,” said Gilbertie.

The July World Agricultural Supply and Demand report from the U.S. Department of Agriculture show significant export estimates for 2022/2023 crop year, with world wheat exports at 45.5 metric tons for Russia, and at 16.8 million metric tons for Ukraine.

Still, “one doesn’t have to be a child of the Cold War to “immediately doubt anything and everything to come out of the Kremlin,” said Darin Newsom, Barchart senior market analyst. He said he’s “long argued that anything of value held by Ukraine at Black Sea ports has been stolen by Russia and shipped off as its own.”

The question now is “if the world can actually be so naive as to have believed the situation was going to change in Ukraine’s favor, with all those metric tons of grain suddenly becoming available again.” Maybe some in the industry believed that, but “not the majority of those who know better.”

Newsom said he expects plenty of grain supplies due to the El Niño climate pattern, both globally and domestically. In June, the National Oceanic and Atmospheric Administration declared the arrival of the climate phenomenon, which is marked by warmer-than-average sea surface temperatures in the central and eastern Pacific Ocean near the equator.

Newsom doesn’t believe that what Russia is saying changes global grain supply and demand. It’s “possible the U.S. sees an uptick in export demand, though there is no evidence of it to this point,” he said. He’s not looking for a “dramatic tightening of supplies globally.”

‘Muted’ effect for now

The Black Sea Grain Initiative has been a “huge benefit” to Ukraine, Russia and the world, said Nicholson.

After Russia’s invasion of Ukraine in February 2022, exports nearly ground to a halt but have rebounded significantly as the grain agreement “stabilized prices for all buyers in the world,” he said.

Russia has been the “main benefactor” by shipping 52 million metric tons of grains for the 2022/2023 crop year as of May, versus 35.6 million metric tons a year ago, said Nicholson, who provided the chart below. He also said Ukraine has shipped 45.8 million metric tons through May, versus 47.8 million metric tons for the same period in the last crop year.

Keep in mind that Ukraine had made most of their shipments before the war started and it has a smaller crop this year, along with more interior logistics issues, said Nicholson. The numbers in the charts are of total grain exports, including some through the Danube River and northern European ports, he said.

Despite the grain deal suspension, Nicholson said potential upside price risk will be “muted and delayed.” Buyers around the world were “prepared for this suspension by developing new supply chains over the past year,” and he believes that buyers built up stocks with “hopes of riding out” this storm.

Eventually, buyers will need to “come back to the market to buy again,” so while futures prices may be selling off a bit Monday, you can bet that cash markets are “being bid up.”

Overall, the news adds “one more uncertainty to central banks and governments as they try to bring down inflation,” Nicholson said.