A peace deal between the US and Iran is unlikely to significantly affect wheat prices, but could reduce freight costs

The global wheat market reacted cautiously to news of a preliminary peace deal between the US and Iran and the prospect of opening the Strait of Hormuz. According to market participants, the main impact of the agreements may be a decrease in the cost of sea transportation, while the direct impact on wheat prices will be limited. This was reported by S&P Global Platts.

Traders in the Black Sea region, Australia and North America say that the key factors for the market in the near term will remain the pace of new crop harvests, weather conditions, currency fluctuations and demand from importers. Geopolitical tensions around Iran have previously caused a short-term increase in freight costs and supported grain prices due to risks of disruptions in fuel and fertilizer supplies.

Following the announcement of a possible end to the conflict, market attention shifted to the prospects for lower oil and sea freight rates. If freight rates continue to decline, this could put additional pressure on wheat prices delivered to end consumers.

Market participants in the Black Sea region do not expect the peace agreement to have a significant impact on wheat prices in the near future. The market has already shifted its focus to assessing the prospects of the new crop, which will be harvested in the coming weeks.

In Russia, traders are closely monitoring weather conditions in the south of the country, where heavy rainfall could delay the start of the harvest. One market participant estimates that the probability of delays in July is about 80%, which could temporarily support prices if export schedules become more difficult.

At the same time, sellers are already adjusting their offers downwards amid expectations of a good harvest, large carryover stocks and weak demand from major importers. Platts' benchmark Milling Wheat Marker fell from $242.25/t in early June to $238/t as of June 16.

Demand from key buyers remains subdued. Turkey is counting on a high domestic wheat harvest, while Egypt and Morocco have sufficient grain stocks, reducing the need for active purchases on the world market. Against this background, the CIF Eastern Mediterranean wheat estimate with 12.5% protein has decreased to $256/t compared to $261/t in early June.

In the maritime transportation market, after the start of the conflict over Iran, freight rates from the Black Sea to Egypt briefly rose to around $27/t. However, they subsequently began to decline due to weakening demand and a reduction in risk premiums. If peace agreements are implemented, further reductions in freight rates may increase pressure on final grain prices on the world market.

Thus, the impact of the US-Iran deal on the wheat market will be mostly indirect due to the logistical factor, while the main direction of price movements will continue to be determined by the volumes of the new harvest and demand from importers.

Current offers buying and selling wheat are available on the GrainTrade exchange.