Wheat prices soar as Russia suspends ship safety agreement
Wheat prices soared after Russia suspended a deal guaranteeing safe passage of Ukrainian exports, with Moscow warning that shipments become “much riskier” without its participation even as new vessels loaded with crops set sail from Ukraine.
The United Nations and Turkey have been scrambling to salvage the agreement after Russia’s weekend withdrawal. Analysts say shipping and insurance costs are likely to rise even if seaborne exports continue, while new deals had already been drying up for Ukrainian exports ahead of a deadline to renew the agreement on Nov. 19.
Ukraine is one of the world’s biggest suppliers of wheat, corn and vegetable oil and the July pact to open three Black Sea ports has been vital to help alleviate a global food crisis.
Russia’s announcement that it would indefinitely suspend involvement in the safe-passage agreement, which was brokered by Turkey and the United Nations, drew widespread condemnation from Ukraine and its allies, with US President Joe Biden warning it would increase starvation.
However, the UN announced late Sunday it had held discussions with all the parties to the deal, and agreed with Turkey and Ukraine to have vessels carrying food continue departing from Ukraine. Russian delegates were informed, the UN said.
Kremlin spokesman Dmitry Peskov said on Monday that grain shipments from Ukraine’s Black Sea ports become “much riskier” after Russia suspended participation, but he declined to comment on what conditions Moscow is setting out for rejoining the pact. He said diplomatic consultations are underway with Turkey and the UN on the future of the pact.
Earlier, Ukraine said Russia launched a massive wave of missile attacks across the country, after the Kremlin accused Kyiv of strikes against its Black Sea fleet and pulled out of a grain-export deal.
The ships are moving from Ukraine under the basis that Russia has only temporarily suspended its participation in implementing the deal, but is still a signatory to the agreement, Ismini Palla, a UN spokeswoman for the Black Sea Grain Initiative, said by phone this morning. Under the terms of the initiative, all parties agreed not to undertake attacks against merchant and civilian ships.
Wheat in Chicago traded 6.4% higher, after earlier jumping as much as 7.7% to $8.9325 a bushel at the open on Monday. Corn climbed as much as 2.8% and soybean oil rose 3%.
Crop traders have been focused for weeks on the approaching deadline of Nov. 19 for renewing the grain-corridor agreement, particularly as senior Russian officials repeatedly criticized the deal, suggesting that any extension would require difficult negotiations. Exports have also been slowed by a swelling backlog of vessels waiting to be inspected as part of the agreement — Ukrainian President Volodymyr Zelenskiy said some ships had been waiting for three weeks.
Vessel and insurance rates to Ukraine are likely to rise, said Michael Magdovitz, a senior commodity analyst at Rabobank. New deals from the country had already been drying up as traders didn’t want to risk getting caught short of the deal’s deadline, said Matt Ammermann, commodity risk manager at StoneX.
The latest uncertainty comes as the International Grains Council estimates global grain stockpiles at an eight-year low this season. Supply is coming under increasing pressure, most recently as drought in Argentina and heavy rain in Australia hamper wheat crops nearing harvest there.
Russia, which leads global wheat exports, stands to offset some of the lost sales from Ukraine. Still, it will be key to watch how shipping costs across the entire Black Sea region are affected by the latest developments, Ammermann said.
The grain-corridor deal faced hurdles and skepticism from the start, as insurers and vessel owners weighed the risks of sending cargoes through the Black Sea as the war raged on.
While Ukraine has shipped more than 9 million tons of goods since the corridor opened — including more than 4 million tons just this month — there is still lots left to go. Silos were already overflowing with last year’s crops when seaborne exports resumed and farmers are now reaping a new harvest, while planting wheat and barley that will be collected next year.
Russia suspended its participation in the deal on Saturday after drone strikes against its naval fleet, claiming without evidence that one of the drones might have come from a grain ship that’s part of the Black Sea initiative. Ukraine strongly denied the accusations.
Twelve outbound and four inbound ships were expected to move through the Ukraine corridor Monday, the UN said late Sunday. The Turkish defense minister said he will discuss the deal with his Russian counterpart Monday evening.
“The grain corridor is a powerful channel for the export of Ukrainian agricultural products, and the closure of this channel is critical, both for the domestic market and for the world market,” Andriy Kupchenko, head of analytics at APK-Inform, said in a note.