Russia’s invasion of Ukraine threatens to cut off some international shipments of wheat, fuel shortages and drive up the price of an essential crop at a time when supply chain disruptions have already pushed food costs up.
Russia and Ukraine together produce nearly a quarter of the world’s wheat and feed billions of people in the form of bread, pasta and packaged foods. The countries are also important suppliers of barley, sunflower oil and maize, among others. Wheat futures on the Chicago Board of Trade were up more than 5 percent as of Thursday afternoon, while corn futures were up more than 2 percent.
In recent days, the price of agricultural commodities has fluctuated sharply as tensions around the Black Sea threaten to disrupt global shipments of wheat, corn and vegetable oil. Disruptions and rising prices for those commodities — as well as the cost of fuel and fertilizers, important inputs to farmers — could further hamper global food markets and threaten social stability, analysts say.
Food prices have already risen globally due to pandemic-related shipping disruptions, rising costs to farmers and bad weather, and wheat is no exception. According to data from the International Monetary Fund, the price of wheat rose by 80 percent between April 2020 and December 2021. That was comparable to the rising cost of corn and higher than the rises for soybeans or coffee.
An air of uncertainty surrounded global markets on Thursday as Russia invaded Ukraine by land, air and sea. S&P Global Platts has temporarily suspended trading, offers and other market values for loading or delivering goods in the Black Sea.
The conflict shut down cargo ships and caused airlines to cancel flights, further reducing capacity for companies trying to ship goods around the world.
Shipping traffic to the Sea of Azov, off Ukraine’s southeast coast, appeared to have come to a halt as the conflict unfolded Thursday morning, with dozens of ships queuing at the Black Sea inlet, according to Lloyd’s List Intelligence, a maritime intelligence service.
Russia, the world’s largest wheat exporter, restricted all of its own shipments of wheat last year with an export tax designed to keep domestic food prices low. Further restrictions could raise concerns about social unrest in other countries, especially in Turkey, Egypt, Kazakhstan and other parts of Europe that import the wheat.
And since agricultural commodity markets are global, any reduction in wheat supply could drive up demand and prices for wheat grown in other parts of the world, including Australia, Argentina and the American Midwest.
Russia’s attack on Ukraine and the global economy
An increasing concern. Russia’s attack on Ukraine could cause staggering increases in energy and food prices and deter investors. The economic damage from supply disruptions and economic sanctions would be severe in some countries and industries and undetected in others.
The outcome depends in part on whether countries decide to impose sanctions on Russian food, or whether Russia responds with further restrictions on its own exports or retaliatory sanctions on foreign goods.
It remains to be seen whether other countries will put restrictions on trade in agricultural products. But White House officials have said their efforts are aimed at punishing Russia’s leaders, military and industrial production, rather than the Russian people. They have prepared a further package of sanctions and export controls that would cut off Russian access to advanced technology such as semiconductors and aircraft parts.
Analysts at Rabobank said in a note on Feb. 18 that two-thirds of Russia’s wheat and barley for the season had already been exported, but if sanctions eventually lead to the removal of the rest of the crop from foreign markets, it would plunge world prices by nearly a third.
The effects on global grain prices will depend in part on what China decides to do, the analysts said. China imports huge quantities of maize, barley and sorghum for animal feed from world markets. It could choose to buy those commodities, as well as wheat, from Russia rather than from other countries. In such a scenario, the impact of sanctions on global grain markets would be relatively small, they said.
On Thursday, China began to approve imports of Russian wheat that had been long blocked over Beijing’s concerns about mold and other contaminants. The countries announced that China would begin importing Russian wheat and barley on February 8, shortly after Russian President Vladimir V. Putin visited China ahead of the Beijing Olympics.
China has emerged as one of Russia’s strongest potential trading partners in the event of further sanctions from the West. Chinese leaders have refused to condemn Russia’s invasion of Ukraine, though they have also called for respect for national sovereignty.
