Traders are bracing for another spike in grain prices after Russia’s withdrawal from a deal to move Ukrainian crops from the Black Sea to the countries that need them most roils markets again.
Russia’s sudden move has left leaders scrambling for a deal brokered by the UN and Turkey, which is credited with saving vulnerable populations from the risk of starvation.
The agreement reached in July helped lower wheat futures after they soared to record highs following Russia’s invasion of Ukraine in late February. The latest trade setback threatens to worsen already high inflation and deepen the global food crisis. The first test will take place on Monday morning in Asia when trading begins.
“We will definitely open higher,” said Charlie Sernotinger, global head of grain futures at ED&F Man Capital Markets Inc. in Chicago.
How much the price jump will jump is harder to predict, as the safe passage deal was already set to expire in mid-November, unless an agreement is reached to extend it.
Over the weekend, Turkey and the United Nations worked to salvage the deal, even as Russia said any next steps could only be determined after a full investigation into the attack on its navy. Both sides, along with Ukraine, agreed that ships carrying food from Ukrainian ports would depart on Monday, defying Moscow and potentially blunting the effects of Russia’s withdrawal from the agreement.
Crop futures are unlikely to rise as sharply as in March, in part because it is already known that Ukraine will not reach its full production potential this year.
“Other producers have adapted,” said David Laborde of the International Food Policy Research Institute in Washington. Still, grain prices could potentially rise 5% to 10% in the coming days as markets “absorb the bad news,” he said.
As of Friday, Chicago wheat prices were down 10% in October, the most since June, partly due to easing supply issues. Money managers increased their net bearish futures positions to the highest level since June 2020, according to the latest weekly US government data.
Generally, the world depends on the Black Sea region for more than a quarter of its annual wheat and barley exports, about a fifth of its corn shipments and the bulk of its sunflower oil supplies.
Along with reduced exports, the early termination of the Black Sea deal threatens the main fertilizer export route that farmers rely on to grow bountiful crops. It also means farmers face a potential shortage of storage space for wheat and corn, with nowhere to go, said Chris Trant, head of U.S. agriculture at HedgePoint Global Markets.
Another big risk is the prospect of farmers in Ukraine refusing to plant crops “they can’t hope to sell,” said Michael Magdawitz, senior analyst at Rabobank in London.
“I think in the short term you’re cutting out an important product and global prices are going to stay very high,” he said.
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