Wheat Prices Tumble As Russia Rejoins Ukraine Grain Export Deal, But Here's What Could Send Prices Back Up

As of Nov. 2, Russia rejoined the Ukraine grain export deal, brokered by Turkey and the U.N. The agreement will allow for the safe passage of vessels carrying grain exports from Ukraine. Russia’s foreign ministry confirmed the extension of the deal for 120 days starting on Nov. 18.

In 2021, Ukraine’s agricultural exports totaled over $27 billion in value, ranking among the top global exporters of sunflower oil, and contributing 46% to the world’s supply. Ukraine is also the fifth-largest global exporter of wheat, accounting for 9% of the world’s supply, reported the World Economic Forum.

What Happened: In reaction to the news, Chicago SRW wheat futures fell from $859.75 per bushel to $814 per bushel as of Monday morning.

On April 7, 2022, President Volodymyr Zelenskyy announced that roughly 22 million tonnes of grain are blocked at Ukraine ports.

According to agriculture ministry data, shown on Monday, Ukraine has exported almost 16.2 million tonnes of grain so far in the 2022/2023 season, down 31.7% from the 23.8 million tonnes exported at the same stage of the previous season.

The Ukrainian government has said that it could harvest between 50 million and 52 million tonnes of grain this year, down from a record 86 million tonnes in 2021 because of the loss of land to Russian forces and lower yields, reported Reuters.

Also Read: Nord Stream Pipeline Maintenance Ends July 21: Will The Kremlin Resume Oil And Gas Deliveries To Europe?

Why This Matters: Although it appears Russia is holding up its end of the deal so far, there are concerns surrounding how long this will actually last.

Prior to resuming the agreement, Russia suspended its participation in the deal on Oct. 29, citing Ukraine's drone strikes on the Crimean city of Sevastopol, CNN reported.

Since the start of Russia’s “special military operation” on Feb. 24, 2022, Russia has been hindering Ukraine's exports on the Black Sea as well as reducing and eventually closing the supply of oil and gas from the Nord Stream 2 pipeline.

This is leaving many Ukrainian shipowners questioning the legitimacy of Russia’s participation.
Ukrainian agriculture ministry data showed that 3 million tonnes of various grains were exported in the first 20 days of November, 29.7% less than in the same period of November 2021.
Although the blockade has been lifted, it appears that Ukrainian shipowners are concerned about safely traversing the Black Sea without hitting a mine, or being targeted by an airstrike or submarine strike.
With reports from the African Development Bank showing the price of wheat up by 45% in Africa, food prices could climb much higher for countries such as Egypt, Bangladesh, and Moldova, which are reliant on Ukraine wheat. All it takes is one drone strike, miss fire, or Russia to back away from the deal to send wheat prices back up.