Global markets have already factored in the possible resumption of grain exports from the Black Sea ahead of an expected deal between Ukraine, Russia and Turkey.
Reuters is reporting a UN-led agreement is due to be signed in Turkey this evening paving the way for some 20 million tonnes of grain stuck in silos in Ukraine to be exported.
Grain analyst with Thomas Elder Markets, Andrew Whitelaw, said while Chicago wheat futures had dropped by about $10 a tonne overnight there was still some scepticism about whether the deal would actually happen.
"There has been a lot of talk since mid-May. It has got very close a number of times," he said.
"The crux of the deal is that there will be a 'humanitarian corridor' to allow Ukrainian grain to get away from their ports.
"It is probably closer to reality now because we have seen a little bit of a softening of some of the sanctions against Russia in the past week.
"That was part of the concerns or demands that Russia had. They wanted the sanctions to be looked at before they were willing to open up to Ukrainian grain exports."
Market could fall if deal signed, says analyst
Global supplies of grain were already tight and prices were high before the Russian-Ukrainian conflict.
Senior commodities analyst with Rabo Research, Cheryl Kalisch Gordon, said the conflict pushed the market even further with wheat fetching double the five-year average at times in the past six months.
"Constantly over recent months [the price has] been sitting about 80 per cent over five-year average prices," she said.
"So pretty unaffordable for many regions of the world who are particularly reliant on wheat as a staple food product and the import of that wheat."
However, Ms Kalisch Gordon said more recently prices had dropped partly in expectation and hope that a deal would be done to get grain moving out of the Black Sea.
"We have seen prices move lower. They are sort of approaching what we had before the conflict began. We are about 45 per cent above the five-year average and the lowest we have seen in a number of months," she said.
Ms Kalisch Gordon said the market would drop further if the deal was signed.
"Probably there will be a pretty steep decline at least initially, but the market needs to reconcile after that decline that we still will be in a tight stock situation," she said.
Mr Whitelaw said the deal and the potential ceasefire were also expected to see increased volumes of Russian grain and fertiliser exports.
"The reality is we are coming onto a huge Russian harvest coming up," Mr Whitelaw said.
"A record wheat production this year and so they will want to get that exported to get some foreign revenue in.
"They have also been exporting fertiliser and now that is definitely not part of the sanction regime, so they will be looking to increase their exports."
