Russia’s decision to pull out of the Black Sea grain deal is a blow to the markets and will halt the flow of agri commodities leaving Ukraine, analysts have said.
The Kremlin announced on Monday (17 July) that the deal, brokered by the UN and Turkey in July 2022, will expire and that conditions for its extension had not been fulfilled.
Kremlin spokesman Dmitry Peskov said: “Unfortunately, the part of these Black Sea agreements concerning Russia has not been implemented so far, so its effect is terminated.”
The market was already anticipating a cancellation, with wheat prices up by 3% today, to an accumulated 12% increase since Wednesday last week.
The Black Sea grain deal was brokered to stop a global food crisis from happening following Russia's invasion of Ukraine, by allowing grain to be exported safely.
Almost 33 million metric tonnes of grains were exported under the previous deal, which supported price stability and prevented shortages across the developing world.
Responding to the Kremlin's decision, Carlos Mera, head of agri commodities markets at Rabobank, said it would be a blow to the markets.
Poor countries in Africa and the Middle East would be more dependent on Russian wheat, he said, as the country represented more than 20% of global wheat exports.
“Ukraine will now be forced to export most of its grains and oilseeds through its land borders and Danube ports," Mr Mera explained.
"This will significantly drive up transportation costs and pile further pressure on Ukrainian farmers’ profits.
"The knock-on effect of this is it could prompt them to plant less next season, placing further pressure on supplies going forward.
“Meanwhile, the stocks-to-use ratio in exporting countries other than Ukraine and Russia is going down."
