Grain prices soar after Russia suspends Ukraine export deal

LONDON, 1 Nov 2022:

The prices of wheat and corn soared yesterday by as much as 7.7% and 2.8% respectively after Russia suspended an agreement to allow grain exports from Ukraine through the Black Sea over the weekend.

The lifting of the agreement – key to alleviating the global food crisis and balancing the cost of food – led trade prices of wheat in Chicago to jump by 7.7% to US$8.93 a bushel (a volume unit for dry goods) early in the day, before cutting gains to 5.6%, according to data from Bloomberg.

In Singapore, corn jumped by 2.8% and soybean oil by 3%.

If prices continue to increase, inflation and starvation could worsen globally.

Until Oct 24, the agreement had allowed the shipping of roughly 8.5 millions tonnes of grain and other foodstuffs from Ukraine, according to the UN’s Joint Coordination Centre in Istanbul.

The corridor, installed in July, put an end to the five-month blockade of Ukrainian ports by Russia and helped reduce the rise in prices.

However, on Saturday, Russia ceased its participation in the deal, which was due to expire on Nov 19, after accusing Ukraine of carrying out “terrorist” drone attacks on Black Sea Fleet ships.

Ukraine is one of the world’s top exporters of grains. After Russia’s full-scale invasion, wheat trade price reached a record high of US$13.64 a bushel in March.

Russia told the UN Security Council yesterday the agreement to allow the export of Ukrainian grain through the Black Sea reached earlier this year cannot continue without Moscow and that it will not allow ships safe passage if not been inspected by Russian experts.

Russia’s ambassador to the UN, Vasily Nebenzya, accused Ukraine of using the so-called “grain corridor” for military purposes and said his country would not allow vessels it has not inspected to pass, adding that it will take its own “control measures” if the traffic continues.

“We will give details of our approach to this in the very near future,” said the diplomat, who regretted that the coordination centre set up in Istanbul had given the green light to some ships without Russia’s permission.

Despite Russia’s exit from the pact, Ukraine, Turkey and the UN yesterday approved the transport of 16 bulk carriers – 12 of them from Ukrainian ports, four of which are on their way to Ukraine to be loaded – and plan to continue inspections of other waiting vessels.

Nebenzya stressed that decisions taken without Russia do not bind it to anything and insisted the Black Sea agreement cannot be implemented without its participation.

The Russian ambassador repeated allegations made by his government in recent days, which claim the marine drones used on Saturday against Russian Navy ships in the port of Sevastopol used the grain corridor.

Moscow believes evidence suggests that at least one of the devices could have been launched from a merchant ship sailing under the Black Sea agreement.

Those arguments were questioned by the UN humanitarian chief, Martin Griffiths, during a speech at the same meeting yesterday – in which he said there was no freighter in the corridor on the night of Oct 29 when the attacks allegedly took place.

Meanwhile, inflation in the eurozone hit a record high in October as the cost of living continued to climb with soaring energy and food prices, the European statistics office reported yesterday.

According to the latest Eurostat data, the year-on-year inflation rate increased by eight-tenths in October and jumped to 10.7% – setting a fresh grim record.

Energy prices recorded the highest rates at 41.9%, after standing at 40.7% in September, followed by food, alcohol and tobacco (13.1%, compared with 11.8% in September), non-energy industrial goods (6.0%, compared with 5.5% in September) and services (4.4%, compared with 4.3% in September), the report added.

The statistics office added that average household electricity prices in the EU soared from €22 per 100 kWh in the first half of 2021 to €25.3 per 100 kWh in the first half of 2022.

Average gas prices have also climbed from €6.4 per 100 kWh to €8.6 per 100 kWh.

The European Central Bank has raised interest rates three times in the last few months to combat soaring prices.

“Our mandate is price stability and we have to deliver on that using all the tools we have and selecting those that will be most appropriate and most efficient. That’s what we are doing today by deciding a rate hike and by changing the interest rate of TLTROs going forward,” ECB chief Christine Lagarde announced on Thursday last week.

Lagarde said the risk of a recession was of concern, particularly for people on low incomes, who are more vulnerable to the “reality of inflation.”