Finance

Wheat prices shoot up after Russia suspends UN grain deal

A photograph taken on October 31, 2022 shows cargo ships loaded with grain in the anchorage area of the southern entrance to the Bosphorus in Istanbul. – Cargo ships loaded with grain and other agricultural products left Ukrainian ports on october 31, 2022 despite Russia’s decision to pull out from a landmark deal designed to ease a global food crisis. As one of the brokers of the grain deal, Turkey has stepped up diplomacy with the two warring countries in a bid to save it as Russia warned that continuing to enforce the agreement without its participation would be “dangerous”. (Photo by Ozan KOSE / AFP) (Photo by OZAN KOSE/AFP via Getty Images)

Wheat prices shot up on global commodity markets after Russia pulled out of a deal to keep grain exports moving out of Ukrainian ports, exacerbating concerns that the move by Moscow could worsen global food shortages.

“Each fraction of a percentage point pushes someone somewhere over the line to extreme poverty,” United Nations aid chief Martin Griffiths told the body’s Security Council on Monday.

Soft red wheat futures jumped 7 percent from Friday to Monday, while contracts for hard red wheat rose 6 percent.

Moscow’s move adds more pressure to international grain prices that are already up 11.2 percent since last year, according to the United Nations Food and Agricultural Organisation’s (FAO) cereal price index. 

In the U.S., cereal and bakery products are up 16.2 percent since last year, according to the Labor Department. U.S. food prices in general are up 11.2 percent amid a broader rise in consumer prices now standing at 8.2 percent over 2021.

“We urge the Government of Russia to resume its participation in the Initiative,” U.S. Secretary of State Antony Blinken said in a statement over the weekend, adding that “Russia is again weaponizing food in the war it started.”

His call was repeated by other international diplomats at a meeting of the United Nations Security Council on Monday, who noted both the commercial and humanitarian benefits of the grain deal, known as the Black Sea Grain Initiative.

So far, more than 9.5 million metric tons of agricultural products have been conveyed to global markets under the auspices of the deal.

Russia suspended its participation in the grain export initiative because it said its vessels had been attacked on Saturday morning by Ukraine. But the U.N.’s Griffiths told reporters that this wouldn’t constitute a breach of the agreement that’s facilitated the transport of food.

“The attack took place at 4 a.m. on Saturday morning,” he said. “The ships that were apparently attacked, which I think were largely military vessels – there are no military vessels, to our knowledge, that are in support of the Black Sea Grain Initiative.”

Griffiths added that the legal framework of the initiative was set up to be able to deal with these sorts of disputes, adding he hoped Russia would soon return to full participation with the accord, which is still fully in place from the U.N.’s perspective, with ships ready to move.

The practical difficulty, diplomats said, will be convincing maritime insurance companies to insure ships and cargos without having Russia on board as a security guarantor. Without assurances from the Russian military, the passage of commercial ships through embattled waters is a much riskier proposition.

Of course, the grain initiative was already a perilous operation.

Last week, a tugboat and a search-and-rescue boat were dispatched in the travel corridor to inspect what the U.N. called “a suspicious mine-like object.” 

While no mine was discovered during the inspection, officials decided to provide transiting cargo ships with escort vessels as an added protection.

Russia’s suspension of the grain deal comes as both fighting and rhetoric in the war have intensified in recent weeks, with President Biden using the term “Armageddon” and the Russian Ministry of Defense, without evidence, accusing Ukraine of planning to use a “dirty bomb.”

An official with the U.S. Department of Agriculture told The Hill that it wasn’t entirely surprising that Russia pulled out temporarily of the grain deal and that commodity markets were likely anticipating some uncertainty around the export corridor as the war grinds on.

The Ukrainian ambassador to the U.N. also said that he wasn’t surprised that Russia suspended its involvement in the grain deal. Russia attacked the port of Odesa only one day after the deal was initially signed in July.

“We are outraged but not surprised over the announcement by Russia to suspend its participation in the Black Sea Grain Initiative,” Ambassador Sergiy Kyslytsya told the Security Council.

The diminished amount of grain on world markets is bad news both for inflation, which is near 40-year highs in the U.S., and for the humanitarian conditions across the globe.

Commodity prices are up 55.7 percent since last year, with food commodities up 23.9 percent, according to U.N.’s latest report on trade and development.

The grain deal has had “massive global welfare effects,” according to Rebeca Grynspan, Secretary-General of the U.N. Conference on Development and Trade.

Agricultural exports from Russia tripled from July through September and wheat exports from Ukraine quadrupled over the same period, she told the Security Council on Monday.

As a result of simultaneous decline in the FAO’s food price index, 100 million people may have been kept out of poverty by the accord.

“The thought of even more global hunger next year — that’s the nightmare that we face,” Griffiths said.

With the Ukraine war now in its eighth month, alarm is also rising over a humanitarian crisis in Ukraine this winter with Russia unleashing a barrage of missiles on energy systems and utilities. 

On Monday, Russian strikes on the Ukrainian capital Kyiv had left as much as 80 percent of the city without running water. 

Earlier in October, CBS News reported that a portion of the U.S. Army’s 101st Airborne division had been deployed for drills to Romania, a country that borders Ukraine. 

“In the capital Kyiv, most people are without water in their homes, and some 350,000 houses and businesses have no electricity,” the spokesperson for the U.N. secretary-general said during a press conference.

Tags Antony Blinken Black Sea grain deal Martin Griffiths Russia-Ukraine war wheat prices
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