WASHINGTON, D.C. – Russia on Monday declined to extend the year-old agreement that has allowed Ukrainian grain to move out of Black Sea shipping ports, a move that immediately drove up commodity prices in response.
Russia stated the shipping agreement was suspended. The announcement came following an attack on a key bridge in Russian-occupied Crimea, the Kerch Strait Bridge, that connects Crimea to Russia. Officials in Russia blamed the attack on Ukraine. The bridge is considered a major artery for Russian supplies and troops moving into Ukraine.
The move is likely to drive up commodity prices for major exporters in response to the shutoff of Ukraine’s major export corridor to the world. Early Monday, grain prices immediately opened higher with September corn up more than 7 cents early; September soybeans up more than 15 cents; and September wheat up more than 19 cents per bushel.
Russia will face serious diplomatic costs for pulling out of the grain deal, said Jake Sullivan, national security adviser to President Joe Biden in an interview Sunday with CBS.
“If Russia pulls out of this initiative, the rest of the world will look at it and say that Russia has turned its back on providing the countries of the Global South — Africa, Latin America and Asia — with the food they need at affordable prices. And I think that in the future it will cost Russia huge diplomatic costs,” Sullivan said.
Within Europe, countries bordering Ukraine have tightened their own policies in recent months for importing Ukrainian commodities because those importers were harming domestic prices.
Officials in Russia maintain the Black Sea deal was being terminated until Russia sees better terms for its own exports for grain commodities and fertilizer.
“Unfortunately, some of the agreements concerning Russia have not yet been fulfilled, so the deal is being terminated,” Kremlin spokesperson Dmitry Peskov was quoted in the Washington Post. “As soon as the Russian part of the agreements is fulfilled, the Russian side will return to the implementation of this deal immediately.”
Russia is already the world’s largest wheat exporter. USDA last week bumped up Russia’s wheat exports for the 2023-24 crop to 47.5 million metric tons (mmt) while Ukraine’s wheat exports were pegged at 10.5 mmt. Before the war, Russia was exporting 36 mmt of wheat while Ukraine was exporting 24 mmt.
USDA also last week bumped up Ukraine’s estimated corn exports to 19.5 mmt. Prior to the war beginning in February 2022, Ukraine was projected to export 32 mmt of corn for the year.
Over the past year the grain deal had allowed Ukraine’s Black Sea ports to export more than 32.7 mmt of commodities to 45 countries, the United Nations noted last week. Corn has made up more than half those exports and wheat takes up 27% of the volume. Sunflower meal and sunflower oil make up another 11% of the volume.
Last week, the United Nations proposed to remove some of the restrictions on financial transactions through the Russian Agricultural Bank — one of Russia’s demands — as part of negotiations to keep Ukrainian grain moving through the Black Sea. U.N. officials cited the importance of moving grain and fertilizer from both Russia and Ukraine.
A statement from a spokesperson for U.N. Secretary-General Antonio Guterres said, “His overriding concern remains for vulnerable people around the world, who stand to lose the most from any unraveling of the Istanbul arrangements and a likely subsequent rise in global food and fertilizer prices.”
Exports through the initiative slowed in recent months because Russia slowed inspections. The U.N. cited that the average of 11 daily ship inspections last October had fallen to below five inspections from April through June of this year. Monthly exports had hit 4.2 mmt last October but were down to only 1.3 mmt in May.
