Russia’s withdrawal from a U.N.-brokered deal that would export Black Sea grains is likely to hit import-dependent countries, sparking increased prices and deepening the global food crisis.
Hundreds of thousands of tons of wheat scheduled for delivery to the Middle East and Africa are at risk after Russia’s withdrawal from the deal. According to two traders based in Singapore, Ukrainian corn exports to Europe will also decrease.
Recently, Russia suspended participation in the United Nations grain deal for an “indefinite term” after a ‘major’ Ukrainian drone attack on its Black Sea fleet in Crimea.
“If I have to replace a vessel which was due to come from Ukraine, what are the options? Not much, really,” said a grains trader based in Singapore, which supplies wheat to buyers in the Middle East and Asia.
Monday’s trading futures soared more than 4%, with corn rising over 2% due to fears over supplies. Global wheat prices jumped to an all-time high earlier this year while corn hit a 10-year high, as the unprovoked Russian invasion of Ukraine added to the Covid-19 and adverse weather supply disruptions.
Australia, a critical wheat supplier to Asia, is likely to have to find a way to fill any gap in supply, with shipping slots booked through February, said traders.
As ships sat in port, with none moving through the established humanitarian maritime corridor, the U.N. Nations, Ukraine, and Turkey pushed ahead on a transit plan for 16 cargo vessels to move forward, despite Russia’s withdrawal.
“We have to see how the situation unfolds. It is unclear if Ukraine will continue to ship grains and what happens to Russian exports,” said the grains trader.
Corn, vegetable oils, and wheat at a standstill
Although Indonesia typically relies on North America and Australia for wheat cargo, buyers are booking wheat shipments along with other Asian nations. According to traders, Indonesian millers purchased around 200,000 tons of Ukrainian wheat for November shipment in deals signed over the past few weeks.
Recently, a Pakistani government agency bought 385,000 tons of wheat, likely sourced from Ukraine and Russia. “We are not sure if Russia will continue to export wheat or it will be safe for vessels carrying Russian wheat to ship from the Black Sea even as Ukrainian exports remain blocked,” said another Singapore-based trader at an international organization. Exports to Europe, scheduled for November, are likely to be affected.
“As far as Europe is concerned, corn is a bigger issue than wheat as we are getting into peak season for Ukrainian corn in November,” according to the second trader.
The decision by Russia is expected to threaten Ukraine’s sunflower oil to crucial destinations, including India, a top edible oil importer.
Under the grains deal, brokered by the U.N., a Joint Coordination Centre (JCC) made up of Russian, Ukrainian, Turkish, and U.N. officials inspect the vessels and agree upon the movement of ships. More than 9.5 million tons of wheat, sunflower, corn, rapeseed, soy, and barley products have been exported from the Black Sea since July.
Although commodity prices around the globe have pulled back from record highs, local retail food prices face further increases with the growing crisis. “Typically, it takes about two months for higher grain prices to filter through the supply chain and import consumers at the retail level,” said an analyst based in Sydney. “But food processors do not have much forward coverage, so it is likely to be a lot quicker.”