Wheat prices surge as Ukraine war disrupts Black Sea grain exports

The latest attacks on ports, ships and grain terminals in the Black Sea are disrupting exports from Russia and Ukraine, two of the world’s biggest wheat suppliers. That is pushing wheat prices higher and raising concerns about another global food-price shock.

Wheat prices are climbing sharply as the war between Russia and Ukraine increasingly disrupts the movement of grain through the Black Sea, one of the world’s most important agricultural trade routes.

Benchmark wheat futures have risen to near three-year highs as traders assess the impact of attacks on ports, vessels and grain terminals on both sides of the conflict. Reuters reported on Thursday that Chicago wheat futures had risen more than 17 per cent since early July as buyers grew increasingly concerned about supply disruptions.

August is a peak period for shipping newly harvested grain to global buyers. Any prolonged disruption at this stage could tighten supplies just as countries are looking to replenish stocks.

Why the Black Sea matters

Russia and Ukraine are major suppliers of wheat and other agricultural commodities to the world.

Together, they account for roughly 30 per cent of global wheat exports, according to estimates cited by Oxford Economics. The two countries are also important suppliers of barley, corn and sunflower oil.

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That makes the Black Sea a critical trade route for global food markets.

But attacks have increasingly disrupted shipping from both countries.

Russia has targeted Ukrainian ports and vessels, while Ukraine has stepped up attacks on Russian ships and export infrastructure. Recent attacks have hit Ukraine’s ports around Odesa as well as Russia’s major grain-exporting facilities at Novorossiysk. Reuters has reported that a growing number of vessels, terminals and export facilities are being affected.

The result is a supply problem that is not necessarily about a lack of wheat in the fields. Instead, the growing challenge is getting the grain from farms to international buyers.

Ukraine’s exports take a hit

Ukraine has been particularly badly affected because its agricultural sector depends heavily on access to ports.

Its major Black Sea ports, including Odesa, Chornomorsk and Pivdennyi, have historically handled most of the country’s agricultural exports. Attacks have sharply reduced shipping activity.

Ukraine’s grain exports have fallen by roughly three-quarters this month, according to data cited in recent reports. Reuters reported that the country’s exports had dropped by about 76 per cent year-on-year in August amid the effective disruption of Black Sea shipping.

Alternative routes through the Danube and by rail can provide some relief, but they cannot fully replace the capacity of major seaports.

That problem is being made worse by low water levels on the Danube after an unusually hot and dry summer, limiting how much cargo ships and barges can carry.

Russia is also facing shipping problems

Russia, the world’s largest grain exporter, is facing its own logistical problems.

Ukrainian attacks have disrupted Russian ports and shipping in the Black Sea and Sea of Azov. Three major Russian grain terminals have already restricted grain deliveries by truck because of increasing risks to maritime shipping, Reuters reported in July.

How much grain could be affected?

The possible scale of the disruption is raising alarm among commodity analysts.

Oxford Economics estimates that disruption across Russia and Ukraine could reduce global cereal exports by as much as 86 million tonnes this year, equivalent to about 17 per cent of global cereal exports.

The consultancy estimates that around 52 million tonnes of Russian exports and 34 million tonnes of Ukrainian exports could be affected.

Alternative routes could replace only part of those volumes, meaning a prolonged disruption could leave international buyers competing for supplies from other major producers.

That could keep prices elevated.

Why food prices are now a concern

Higher wheat prices do not automatically mean a global food crisis. Countries can increase imports from alternative suppliers, while farmers elsewhere can respond to higher prices by increasing production.

But replacing Russian and Ukrainian supplies quickly is difficult.

Other exporters such as Australia, Argentina, Canada and the United States can supply additional wheat, but transportation distances and shipping costs can be higher. Reuters reported that Australian wheat was being quoted at significantly higher prices than some Black Sea supplies as buyers looked for alternatives.

There are also other pressures on global food markets.

Drought and extreme heat have affected crops in parts of Europe. Fertiliser costs remain another concern, while weather-related disruptions could add to uncertainty over agricultural production.

The Food and Agriculture Organization’s food price index has already been moving higher, with crop prices contributing to the increase.

What happens if the disruption continues?

The biggest risk is that temporary shipping problems turn into a prolonged supply squeeze.

Commodity markets have previously recovered when Black Sea shipping resumed or alternative routes became available. But repeated attacks on ships and terminals could make insurers, shipping companies and grain traders more reluctant to operate in the region.

That would raise freight and insurance costs even if enough grain remained available globally.

Analysts have warned that markets may still be underestimating the impact of a prolonged disruption. Reuters reported that global wheat buyers are already delaying or cancelling cargoes and searching for alternatives as the peak export season gets under way.

The situation also highlights how quickly a regional conflict can spread into global commodity markets.

For consumers, the immediate impact may not be visible in the price of a loaf of bread or a packet of flour. But sustained increases in wheat and other agricultural commodity prices can gradually feed into the cost of food, animal feed and other products.

And for countries that depend heavily on imports from the Black Sea, the consequences could be more immediate.

The longer attacks continue and exports remain disrupted, the greater the risk that the world’s food markets face another broad-based price shock.

(With inputs from agencies.)