Wheat Prices Seesaw after Russia Withdraws from ‘Black Sea Grain Deal’

Wheat Prices Seesaw after Russia Withdraws from ‘Black Sea Grain Deal’

Ira Singh
18 July’23

In a move that sent shockwaves through global wheat markets, Russia recently announced its withdrawal from the Black Sea grain deal, leading to significant fluctuations in wheat prices worldwide. The decision by the world’s leading wheat exporter has raised concerns about the stability of the global wheat market and its potential impact on food security.

The Black Sea grain deal, which was a cooperative agreement between Russia, Ukraine, and Kazakhstan, aimed to regulate grain exports from the region and ensure stability in the global wheat market. It played a crucial role in determining wheat prices and supply levels worldwide. Russia’s sudden withdrawal from the pact has disrupted the established trade dynamics and sent ripples of uncertainty through the agricultural industry.

The agreement that enabled Ukraine to export grain to international markets through the Black Sea came to an end at midnight in Istanbul (2100 GMT) as Russia declined to extend it further, according to sources.

The Black Sea Grain Initiative was struck a year ago to alleviate a global food crisis after Russia’s invasion of Ukraine, when Russia blocked ships from carrying the country’s grain out of its ports on the Black Sea. Those blockages swiftly sent grain prices soaring to record highs.

UN Secretary-General António Guterres expressed his deep regret regarding Russia’s decision to terminate the Black Sea grain deal. He emphasised that the Kremlin’s move would have severe consequences for hundreds of millions of people facing hunger and strained consumers worldwide, according to recent reports.

As news of Russia’s termination of the agreement broke, grain prices in the markets had already begun to increase. Under the deal, grain prices had fallen by 35 per cent.

However, the collapse of the agreement has reversed this trend, further exacerbating concerns over food affordability and availability.

While Turkish President Recep Tayyip Erdoğan had earlier expressed optimism about potential progress in talks at the UN to preserve the deal,Secretary-General Guterres’ statement seemed to acknowledge that the agreement, brokered by the UN and Turkey and renewable every three months, was effectively over, according to sources.

Russia’s move appears to be part of a broader effort by Mr. Putin to reassert an aura of unassailable authority after a failed mutiny by the Wagner Group, said Timothy Ash, a senior sovereign strategist at BlueBay Asset Management in London and an expert on Russia and Ukraine. “It will hurt specific countries dependent on these exports,” Mr. Ash said. But beyond that, “it shows how weak Putin is after the Wagner coup: He is now desperate to take any bit of leverage he can.”

Since the deal, food prices have dropped over 23 percent from their peak in March 2022, according to the United Nations Food and Agriculture Organization’s Food Price Index. The accord has allowed over 35 million tons of vital food commodities to be exported from Ukrainian ports on the Black Sea to 45 countries on three continents, the United Nations said, according to sources.

In the coming months, the global wheat market is likely to witness fluctuations as market participants navigate the new landscape shaped by Russia’s decision. The long-term consequences of this withdrawal remain uncertain, and it will be crucial for stakeholders to collaborate and seek innovative solutions to maintain stability in the global wheat market and ensure food security for all.