Prices of wheat and corn on global commodities markets rose on Monday after Russia pulled out of a deal that had allowed some vital grain exports from Ukraine to pass through the Black Sea despite the war.
Wheat futures on the Chicago Board of Trade jumped 5.5% on Monday to $8.74 a bushel. Corn futures were up 2.3% to $6.96 a bushel. Palm oil futures trading in Malaysia also rose, Reuters reported, on fears over the potential impact on exports of Ukrainian sunflower oil.
Ukraine and Russia together account for nearly a third of global wheat exports, according to Gro Intelligence, an agricultural data firm. They are also among the top three global exporters of barley, maize, rapeseed oil and sunflower oil.
Russia suspended its participation in the grain deal indefinitely on Saturday, after what it claimed was a drone attack by Ukrainian armed forces on its Black Sea fleet in the Crimean city of Sevastopol. Ukraine has accused Russia of blackmail and of inventing “fictitious terrorist attacks” on its own facilities in Crimea.
The International Rescue Committee (IRC), a humanitarian aid organization, said the consequences of Russia’s withdrawal from the grain deal could be “catastrophic” for poor countries, many of which are already experiencing extreme hunger.
The United Nations-brokered deal, which was agreed in July and ensured the safe passage of ships carrying grain from Ukraine through the Black Sea, has played a crucial role in lowering the prices of wheat and other commodities globally.
After reaching a record high in March, the UN Food and Agriculture Organization’s global food price index has declined for seven months in a row.
The grain deal was due to expire on November 19, but efforts were already underway to extend the agreement, as concerns mounted that Moscow would follow through on threats to pull out.
Russia’s decision to suspend its participation “is adding immense volatility to global grain prices,” said Tracey Allen, an agricultural commodities strategist at JPMorgan Chase.
Global supplies remain tight as extreme weather conditions weigh on crop yields, according to Allen. While the United States could ramp up wheat exports a bit, it wouldn’t be able to completely fill the gap if the deal falls apart, cutting off a key source for countries in the Middle East and North Africa.
Questions around the deal’s future will keep prices of wheat and corn elevated, Allen said.
On Friday, UN Secretary General António Guterres said the renewal of the Black Sea Grain Initiative was crucial to avert a global food crisis.
“We underline the urgency of doing so to contribute to food security across the world, and to cushion the suffering that this global cost-of-living crisis is inflicting on billions of people,” he said in a statement.
The UN estimates that the reduction of prices for staple foods as result of the deal has indirectly prevented some 100 million people from falling into extreme poverty. Exports of grains and other food products under the initiative have surpassed 9 million tons, according to the intergovernmental organization.
Of that, 2.65 million tons is still awaiting inspection and it’s unclear what will happen to these cargoes now, Warren Patterson, head of commodities strategy at Dutch bank ING, said in a note on Monday.
Any suspension of grain exports will hit hardest those “already on the brink of starvation” in countries such as Yemen, according to the IRC’s East Africa emergency director, Shashwat Saraf.
“Like Yemen, the East Africa region relies on Russia and Ukraine for much of its wheat imports and as Somalia teeters on the brink of a catastrophic famine, a further disruption of critical grain exports could push Somalia over the edge by impacting affordability and availability of grain within the region,” Saraf said in a statement.
Some 345 million people are predicted to experience acute food insecurity this year, according to the IRC.
On Monday, efforts were already underway to keep grain moving despite Russia’s withdrawal, which is preventing more than 200 ships leaving port, according to a statement Sunday by Ukraine’s Ministry of Infrastructure.
Twelve vessels left Ukraine’s Black Sea ports on Monday, Ukraine’s Minister of Infrastructure Oleksandr Kubrakov said on Twitter. The ships were carrying 354,500 tons of grain and other agricultural products destined for Africa, Asia and Europe, the Ministry of Infrastructure said on its Facebook page.
One of them, loaded with 40,000 tons of grain, is destined for Ethiopia, Kubrakov added.
The UN announced earlier on Monday that it had agreed with Ukraine and Turkey, which helped broker the original deal, to move 16 vessels through the Black Sea. Russia had been informed of the plan, it said.
Speaking in Istanbul, Turkish President Recep Tayyip Erdoğan said that Ankara is determined to try and keep the initiative alive despite Moscow’s withdrawal.
— Julia Horowitz, Uliana Pavlova, Sugam Pokharel, Dennis Lapin, Jo Shelley, Victoria Butenko, Isil Sariyuce and Jorge Engels contributed to this report.