A combine harvester empties grain into a trailer in Chelmsford, UK, on Wednesday, 3 August 2022. Droughts, flooding and heatwaves threaten wheat output from the U.S. to France and India, compounding shrinking production in Ukraine. (Photo: Hollie Adams/Bloomberg) Russia suspended the deal after drone strikes against its naval fleet on Saturday, claiming without evidence that one of the drones might have come from a grain ship that’s part of the Black Sea initiative.
Wheat in Chicago jumped as much as 7.7% to $8.9325 a bushel at the open on Monday before paring gains to 5.9% by 10.06am in Singapore. Maize climbed as much as 2.8% and soybean oil rose 3%. The latest supply setback could add to global food inflation and exacerbate hunger if price rises are sustained.
Turkey and the United Nations were working to salvage the agreement, even as Russia said any future steps could only be determined after a full investigation into the attack on its naval fleet. The two parties, alongside Ukraine, agreed to have vessels carrying food from Ukrainian ports sail on Monday, in a challenge to Russia’s decision to back out of the deal.
“The UN, along with Ukraine and Turkey will continue the grain deal despite Russia pulling out,” said Joe Davis, director of commodity sales at Chicago-based brokerage Futures International LLC. He expects the wheat market to continue to be volatile as traders await further news out of the Black Sea.
The agreement, brokered by the United Nations and Turkey, was signed in July and ended a five-month Russian blockade of Ukraine’s ports that cut global supplies and sent food costs to a record. It was designed to allow the safe passage of grain and oilseeds – some of Ukraine’s most important exports.
The grain corridor has eased tight world supplies since opening three months ago. Ukraine has shipped more than 9 million tons of grains and other foodstuffs, and prices for corn and wheat have retreated from the highs seen earlier in the year. The deal is set to expire on 19 November, and Moscow officials had already cast doubt on whether they would extend their participation.
Typically, the world relies on the Black Sea region for more than a quarter of wheat and barley exports, about a fifth of its maize cargoes and the bulk of its sunflower oil shipments. An early termination of the grain deal may also put at risk a main export route of fertiliser relied on by farmers to grow ample crops.
Wheat traded at $8.78 a bushel, well below the intraday record of $13.6350 in March after the Russian invasion of Ukraine. Futures are still set for a loss of 5% in October partly on less worry over global supply. Money managers raised net-bearish positions on Chicago wheat to the highest in more than two years. BM/DM
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