World food supplies at risk as Russia withdraws from Black Sea deal

  • Wheat supplies to Africa, East in danger after Russia retreat
  • Europe saw corn shortages as Ukrainian supplies hit
  • Australia unlikely to help book cargo slots until February
  • Palm prices jump 4% due to Ukraine’s sunflower oil supply problems

SINGAPORE (Reuters) – Russia’s weekend retreat from a U.N.-brokered deal to export Black Sea grain is likely to affect shipments to import-dependent countries, deepening the global food crisis and leading to price gains.

Two Singapore-based traders said hundreds of thousands of tons of wheat reserved for delivery to Africa and the Middle East are at risk after Russia’s withdrawal, while Ukrainian corn exports to Europe will decline.

Russia on Saturday suspended its participation in a United Nations grain deal “indefinitely”, after what it said was a major Ukrainian drone attack on its Black Sea fleet in Crimea.

“If I had to replace a ship that was due to come from Ukraine, what are the options? Not really much,” said a Singapore-based grain trader who supplies wheat to buyers in Asia and the Middle East.

On Monday, Chicago wheat futures jumped more than 5% and corn prices rose more than 2% on supply concerns.

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Earlier this year, global wheat prices jumped to an all-time high, and corn hit a 10-year high, as Russia’s invasion of Ukraine added fuel to a recovery triggered by bad weather and supply disruptions by COVID-19.

Traders said Australia, a major supplier of wheat to Asia, is unlikely to be able to fill any supply gap, with shipping periods booked until February.

Shares in Australia’s Graincorp (GNCAX) – which posted a fivefold jump in first-half profit due to supply restrictions arising from the conflict between Russia and Ukraine – rose more than 7%.

No ships moved through the humanitarian sea corridor established on Sunday. However, the United Nations, Turkey and Ukraine went ahead with the implementation of the Black Sea grain deal and agreed on a transit plan on Monday for 16 ships to move forward, despite Russia’s withdrawal.

“We have to see how the situation develops. It is not clear if Ukraine will continue to ship grain and what will happen to Russian exports,” said a Singapore-based grain trader.

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Wheat, corn and vegetables

Asian buyers booking shipments of Ukrainian wheat include Indonesia, the world’s second-largest importer of grain, although the region is usually dependent on Australia and North America.

In the recent deals, Indonesian millers bought four shipments, or about 200,000 tons, of Ukrainian wheat for November shipments in deals signed over the past few weeks, traders said. Some Vietnamese feed mills that bought Ukrainian wheat are also likely to suffer.

Last week, a government agency in Pakistan bought about 385,000 tons of wheat in a tender likely to be sourced from Russia and Ukraine.

“We are not sure whether Russia will continue to export wheat or whether it will be safe for ships carrying Russian wheat for shipment from the Black Sea even as the Ukrainian export ban continues,” said a Singapore-based trader at an international company.

Ukrainian corn exports to Europe booked for November are also likely to be hit.

“As far as Europe is concerned, corn is a bigger issue than wheat as we are entering peak season for Ukrainian corn in November,” said the second trader.

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Russia’s decision is expected to support global vegetable oil prices as it threatens Ukrainian sunflower oil exports to major destinations, including India’s largest importer of edible oil.

Malaysian palm oil futures jumped more than 4% on Monday.

Under the UN-brokered grain deal, the Joint Coordination Center (JCC) made up of officials from the UN, Turkey, Russia and Ukraine approves vessel movement and vessel inspections. More than 9.5 million tons of corn, wheat, sunflower products, barley, rapeseed and soybeans have been exported from the Black Sea since July.

Although global agricultural commodity prices have fallen off record levels in recent months, domestic retail food prices remain high and are now facing further upside.

“It usually takes about two months for higher grain prices to filter through the supply chain and impact consumers at the retail level,” said a Sydney-based analyst.

“But food processors don’t have much future coverage, so it’s probably a lot faster.”

(Navin Thukral reports). Edited by Tom Hogg

Our Standards: Thomson Reuters Trust Principles.

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