Fluctuations in Wheat Prices Following Russia's Exit from Black Sea Grain Deal

Chicago: Chicago has pulled out of a grain deal that allowed Ukraine to export its grain through the Black Sea despite a wartime blockade, causing concerns about renewed volatility in global food prices. The move has rattled Wheat markets and exposed vulnerable countries in Africa and the global south to the prospect of new food insecurity. This trade route was considered a key one for global markets for grain from Ukraine, which is a major breadbasket in the world. Chicago Wheat futures, which are a barometer for global prices, briefly jumped over 4% after the announcement, only to swing lower by more than 1% later in the day.

Russia's recent move may be part of Vladimir Putin's efforts to regain authority after the failed mutiny by the Wagner Group. That rely on these exports will face adverse effects. Putin's actions show his desperation to gain any bit of leverage since he appears weak after the Wagner coup. In other related news, the Black Sea Grain Initiative was made a year ago to resolve a global food crisis stemming from Russia's invasion of Ukraine and the subsequent blockage of grain-carrying ships from its Black Sea ports. These blockages led to a significant increase in grain prices.

United Nations Food and Agriculture Organization’s Food Price Index reports that food prices have decreased by 23 percent since March 2022 when the deal was made. The agreement has permitted Ukraine to export more than 35 million tons of essential food commodities from its Black Sea ports to 45 countries across three continents. However, with the Black Sea ports now closed, Ukraine may need to rely on alternative routes such as exporting via the Danube River and truck and train transportation, which are significantly slower than shipping.

Prices are not expected to rise as sharply as they did follow Russia's invasion of Ukraine due to various factors. One reason is the global commodity price outlook is weaker than last year, attributed to China's economic recovery faltering and a global cost-of-living crisis caused, in part, by the surging food and fuel costs from Russia's aggression. This has led to a reduced demand for food products. Additionally, supply chain stresses are easing, and manufacturing and production costs are cooling. Despite the downward trend in food prices, they are likely to remain higher compared to pre-war levels.

Russia is still flooding the market with low-priced Wheat, meaning there is currently no shortage in global food supplies. While this development may not have an immediate impact on world hunger, the ongoing tension and lack of resolution could lead to growing risks. Just the day before Putin's withdrawal from the grain agreement, he issued a surprise order for the temporary seizure of two major European companies' Russian operations, sending a warning signal to Europe.

The Russian government has taken temporary external administration of Danone Russia. President Vladimir Putin signed a decree in April allowing for temporary state control over the assets of foreign companies or individuals from "unfriendly" states operating in Russia. French dairy company Danone has more than a dozen factories in Russia and sells products under various brands such as Activia yogurt, Nutrilon infant formula, and Prostokvashino milk. The company is currently reviewing its legal options after its assets were placed under "temporary management" of government property.

Carlsberg, the world's third-largest beer manufacturer has been facing troubles after its Baltika Breweries in Russia was taken over by the Russian Federal Agency for State Property Management. Carlsberg had announced over a year ago that it planned to withdraw from Russia and had recently secured plans to invest $40 million in its Ukraine factories while also finding a buyer for its Russian operation, which employed a significant workforce of 8,400 individuals. However, with the recent presidential decree that transferred the Russian business into temporary government control, the sale process has become uncertain, and Carlsberg is now faced with an unpredictable future in the region.