Wheat prices rise as Russia issues warnings to ships Ship’s crew

By Aine Quinn, Megan Durisin and Michael Hirtzer (Bloomberg) –

Wheat futures rose as much as 9%, the sharpest rise since 2012, when Russia threatened ships calling at Ukrainian ports, escalating a dispute over exports from the important Black Sea region.

The Russian Defense Ministry said that all ships calling at ports from Thursday will carry cargo as potentially military. It also said that the flag countries of ships sailing to Ukraine are considered to be on Kiev’s side in the conflict. Wheat prices in Chicago, the global benchmark, shot up quickly, climbing to the FX limit. Paris Wheat closed up 8.2%, its biggest gain since February 2022.

The move comes just days after Russia ended the Black Sea Grains Agreement, which had allowed shipments of staple foods to pour through the corridor. Wednesday’s escalation is raising the risk of war in the region and is likely to dashed even vague hopes of Ukraine resuming exports, adding to uncertainty over the world’s food supply.

“We thought it was unlikely that the grain deal would go ahead, but it is an escalation – after a series of escalations that we have already seen,” said Michael Magdovitz, senior analyst at Rabobank in London. The harvest of Ukrainian farmers is “reaching right at the moment when their export capacities are being shut down,” he said.

Ukraine’s Black Sea ports are a major artery for grain sales abroad – historically they accounted for the bulk of shipments – and the harvest season is now underway.

The Black Sea Grains Agreement had helped keep trade alive for a time and was a rare example of Russian cooperation during its war in Ukraine. The deal collapsed this week after Moscow heeded repeated warnings to withdraw from the pact agreed a year ago. In the days since its withdrawal, Russia has repeatedly attacked Ukraine’s agricultural infrastructure – shelling ports and ports harmful A major trader said repairing harvesting terminals would take “a lot of time” and hamper trade in the longer term.

While Ukraine can still ship grain by river, road, and rail, it is much more cumbersome and expensive than via its deep-sea ports. The closure of the corridor could slow down the transport of the crops of the upcoming harvest.

Together, Russia and Ukraine account for a huge chunk of global agricultural supplies. In recent years, nations exported so much wheat, corn, sunflower oil and other foods that the shipments represented more than a tenth of all the calories traded worldwide.

Some sea areas in the north-west and south-east of the international waters of the Black Sea have been temporarily declared dangerous for shipping, the Defense Ministry said on Telegram.

It would mean a dramatic escalation of Russia’s confrontation with Ukraine’s international allies if Moscow fired on a ship flying one of their flags. The Russian Defense Ministry did not say what it would do with ships attempting to enter the ports.

According to Interfax, President Volodymyr Zelenskyy earlier said Ukraine is studying options to restart the grain corridor after Russia announced Monday its exit from the deal, including possible convoys for ships.

According to Ukraine, agricultural terminals were hit Tuesday and Wednesday at the ports of Odessa and Chornomorsk, two of the three ports operating under the grain deal Ministry of Agriculture. The damage crippled a “significant part” of Chornomorsk’s grain export infrastructure, destroying 60,000 tons of grain.

While Ukraine’s harvests are already shrinking under the weight of war, the country remains a major global supplier – and relies on exports for a large chunk of sales. Curbing these flows could put an additional strain on farmers’ finances as they prepare to sow winter crops like wheat in just a few months.

“I have no doubt that Ukrainian farmers will face massive financial challenges if this continues. They will say what the point of this planting is,” said Magdovitz.

© 2023 Bloomberg LP

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