Grain prices soar as Putin targets global wheat supply chain
Wheat prices have soared following Russia’s attacks on global grain supplies, by bombing Ukraine's grain export infrastructure and by declaring that grain ships bound for Ukraine will be treated as potential military targets.
On Wednesday, wheat prices on the European stock exchange rose by 8.2% in 24 hours to €253.75 (US$284.9) per tonne, while corn prices were up 5.4%. US wheat futures also rose 8.5% on Wednesday, the highest daily hike since Russia's invasion of Ukraine in February 2022
Ukrainian Agriculture Minister Mykola Solskyi has said Russia’s drone strikes had destroyed 60,000 tonnes of grain destined mostly for China, and also damaged “considerable parts of grain export infrastructure”.
Russia President Vladimir Putin began targeting Ukraine's ports shortly after midnight on Tuesday, just hours after withdrawing from the grain deal it had struck with the UN that guaranteed safe passage for grain shipments through the Black Sea.
The Russian Defence Ministry also said in a statement that cargo vessels transporting grain from Ukraine will be regarded as potential carriers of military cargo. "Flag states of such vessels will be considered to be involved in the Ukrainian conflict on the side of the Kyiv regime," it said.
Black Sea grain cargo routes closed by Russia
Moscow accuses Ukraine of using the Black Sea grain corridor for "combat purposes", and has declared southeastern and northwestern parts of the Black Sea's international waters “unsafe for navigation”, but gave no details about precise areas affected.
For its part, Kyiv is urging countries in the Black Sea region to intervene to assure the safe passage of cargo ships.
Russia has been, in effect, weaponising grain supplies for months. In the run-up to its long-expected exit from the grain-export deal, grain shipments from Ukraine between October 2022 and May 2023 fell by 71%, with just 1.3 million metric tons being exported in May. Reuters reports that the last grain ship to leave Ukraine’s Odesa port did so on Sunday morning.
The grain deal was vital, because Ukraine is one of the world's largest exporters of sunflower, maize, wheat and barley. Countries hardest hit will be those sourcing cheaper Ukrainian wheat.
Pre-war, in 2021, Ukraine was the world’s sixth largest wheat exporter in, accounting for 10% of the global market share.
Following Russia's invasion in February 2022, Russian naval vessels blockaded Ukrainian ports and trapped 20 million tonnes of grain. The blockade meant global food prices skyrocketed.
An agreement was finally brokered in July 2022, with the help of the United Nations and Turkey. But on Monday, Moscow notified the UN, Turkey and Ukraine that it did not intend to renew the deal, accusing the West of not keeping its side of the bargain.
President Putin has said he would return to the grain agreement immediately if his demands were met. These include reconnecting Russia's agricultural bank to a global payment system.
Insurers withdraw Ukraine cargo ships cover
Shipping insurers, meanwhile, are reluctant to cover ships into Ukraine.
Reuters reports that a cargo insurance facility providing cover for Ukraine grain shipments travelling under the Black Sea deal has been suspended. The marine cargo and war facility provided cover of up to $50 million per cargo.
Norwegian shipping insurance group DNK – which provides war risk policies – also told Reuters it was “currently unable to provide cover for Ukraine”
Leading supply chain technologist David Shillingford warns that Putin’s grain move will have “massive repercussions for food security”.
Writing on LinkedIn, Shillingford – Co-founder of supply chain risk Everstream Analytics – warned that the UN’s World Food Program relies heavily on grain from Ukraine, and that “many countries in North Africa will be affected”.
The UN said on Tuesday there are a "number of ideas being floated" to help get Ukrainian and Russian grain and fertiliser to global markets after Moscow quit the Black Sea deal.
The European Union has also said it is looking to transport more Ukrainian grains via road and rail.
But whatever measures are put in place, they are unlikely to compensate for the lack of deliveries from Ukrainian ports on the Black Sea.
- Read our article, Top 10 ways to protect supply chain from affects of Ukraine war.
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