War & Wheat: The Impact of the Russia-Ukraine Conflict on Global Commodity Markets
The Russian invasion of Ukraine is at the epicentre of current geopolitical discussions. This article discusses the cascading implications of the evolving conflict on the global commodities market, focusing primarily on wheat prices.
Why did Russia invade Ukraine?
The history between the two countries is deeply interwoven and rich with history. Russia and Ukraine have been divided and united under kingdoms and unions since the 9th century. After the dissolution of the Soviet Union in 1991, Russia and Ukraine became separate nations. Some Russians view Ukraine as siblings to Russia due to their shared cultural ties. Putin shares this view, and sees Ukraine as a part of the Russian national patrimony. Putin aims to rebuild and assert Russia’s power in line with this belief, therefore, starting the invasion in February 2022.
The Black Sea Deal
Brokered in July 2022 by the UN and Turkey, the Black Sea deal secured the safe transport of 33 million tons of crop exports and edible oils through the Russian blockade and out of Ukraine. Russia decided to withdraw from this agreement, as constituent sanctions impeded their exports of fertiliser, and other goods outlined in the deal.
Ukraine - the breadbasket of Europe
Ukraine was among the world’s top three exporters of grain, exporting 10% of the world’s wheat. Prior to the invasion, around 67% of Ukraine’s grain supplies went to developing countries and those vulnerable to food insecurity. It is a major contributor to the United Nations World Food Program, which provides food assistance worldwide, making up more than half of the program’s supply. Ukraine is also one of the world’s largest suppliers of vegetable oils.
Wheat's Wild Ride
Immediately after Russia’s withdrawal from the Black Sea deal, Chicago Wheat Futures, a global benchmark for wheat prices, surged by 7% – an unusual spike given that typical fluctuations lie between a 2-3% factoring in unexpected factors. Rabobank highlights China, Spain, and Egypt as immediately impacted markets, foreseeing volatility in the short term as markets recalibrate.
A decrease in global supply of wheat places pressure on existing grain providers like Australia. As international grain prices increase due to the supply disruptions, local grain prices will follow, given Australia's export obligations to the global market. Australian wheat production was expected to achieve a record 13.7% share in global wheat exports due to this conflict, alongside drought conditions in the US and Argentina. As of July 2023, Victorian grain producers were experiencing heavier than expected rainfall, which put their crop in an unfavourable spot. Local farmers are pondering the moral implications of benefiting from international conflicts. On the other hand, Graincorp, a local grain giant, increased their expected earnings with a bullish expectation on the market.
Russia’s Hunger Games
Putin is leveraging global commodity markets to further Russia’s geopolitical agenda.
In order to economically isolate the port-dependent country, Putin has created a grain export offer with Qatar and Turkey, involving neutral parties in what seems to be a commercial decision, to harbour external political pressures to resolve the conflict sooner.
Attacking neutral shipping and trade is not a new tactic. In 1917, the Kaiser’s Germany resorted to unrestricted submarine warfare, attacking ships from conflict-neutral countries suspected of supplying the Allies with goods. The US was eventually involved in the conflict, despite being a neutral country up until that time. In the 1980s Iran-Iraq war, both parties attacked neutral ships in the Persian Gulf, leading to international concerns and interventions.
Russia has deployed missile barrages to Ukraine’s export terminals, and its mining facilities may be targeted next. Russia may also leverage their strong crude oil market share to increase the political pressure.
Ripple Effects
The global commodity market is on the verge of food price inflation.
Soon after Russia’s withdrawal from the Black Sea deal, India decided to halt exports of non-basmati white rice to reduce local rice prices and ensure domestic supply. Contributing more than 40% to global rice exports, this ban has stoked fears of food price inflation. Countries with rising costs such as Thailand and Vietnam are experiencing surges in the price of the staple, as well as wheat, which is considered a substitute good.
Stabilisation
Despite escalating tensions in the Black Sea as of August, wheat prices seem to have stabilised. The US Department of Agriculture revised its expectations for Russian wheat exports for the 2023-2024 period to be a record 48 million metric tonnes, a quarter of global wheat trade, at the expense of Ukraine’s production, which has fallen to a third of pre-invasion levels.
Outlining the impacts of the Russia-Ukraine conflict illustrate the complex geopolitical landscape, and its ties to the global commodities market. While neutral suppliers such as Australia address the moral implications of these price movements, the future of global food security remains uncertain.
The Russian invasion of Ukraine is at the epicentre of current geopolitical discussions. This article discusses the cascading implications of the evolving conflict on the global commodities market, focusing primarily on wheat prices.
Why did Russia invade Ukraine?
The history between the two countries is deeply interwoven and rich with history. Russia and Ukraine have been divided and united under kingdoms and unions since the 9th century. After the dissolution of the Soviet Union in 1991, Russia and Ukraine became separate nations. Some Russians view Ukraine as siblings to Russia due to their shared cultural ties. Putin shares this view, and sees Ukraine as a part of the Russian national patrimony. Putin aims to rebuild and assert Russia’s power in line with this belief, therefore, starting the invasion in February 2022.
The Black Sea Deal
Brokered in July 2022 by the UN and Turkey, the Black Sea deal secured the safe transport of 33 million tons of crop exports and edible oils through the Russian blockade and out of Ukraine. Russia decided to withdraw from this agreement, as constituent sanctions impeded their exports of fertiliser, and other goods outlined in the deal.
Ukraine - the breadbasket of Europe
Ukraine was among the world’s top three exporters of grain, exporting 10% of the world’s wheat. Prior to the invasion, around 67% of Ukraine’s grain supplies went to developing countries and those vulnerable to food insecurity. It is a major contributor to the United Nations World Food Program, which provides food assistance worldwide, making up more than half of the program’s supply. Ukraine is also one of the world’s largest suppliers of vegetable oils.
Wheat's Wild Ride
Immediately after Russia’s withdrawal from the Black Sea deal, Chicago Wheat Futures, a global benchmark for wheat prices, surged by 7% – an unusual spike given that typical fluctuations lie between a 2-3% factoring in unexpected factors. Rabobank highlights China, Spain, and Egypt as immediately impacted markets, foreseeing volatility in the short term as markets recalibrate.
A decrease in global supply of wheat places pressure on existing grain providers like Australia. As international grain prices increase due to the supply disruptions, local grain prices will follow, given Australia's export obligations to the global market. Australian wheat production was expected to achieve a record 13.7% share in global wheat exports due to this conflict, alongside drought conditions in the US and Argentina. As of July 2023, Victorian grain producers were experiencing heavier than expected rainfall, which put their crop in an unfavourable spot. Local farmers are pondering the moral implications of benefiting from international conflicts. On the other hand, Graincorp, a local grain giant, increased their expected earnings with a bullish expectation on the market.
Russia’s Hunger Games
Putin is leveraging global commodity markets to further Russia’s geopolitical agenda.
In order to economically isolate the port-dependent country, Putin has created a grain export offer with Qatar and Turkey, involving neutral parties in what seems to be a commercial decision, to harbour external political pressures to resolve the conflict sooner.
Attacking neutral shipping and trade is not a new tactic. In 1917, the Kaiser’s Germany resorted to unrestricted submarine warfare, attacking ships from conflict-neutral countries suspected of supplying the Allies with goods. The US was eventually involved in the conflict, despite being a neutral country up until that time. In the 1980s Iran-Iraq war, both parties attacked neutral ships in the Persian Gulf, leading to international concerns and interventions.
Russia has deployed missile barrages to Ukraine’s export terminals, and its mining facilities may be targeted next. Russia may also leverage their strong crude oil market share to increase the political pressure.
Ripple Effects
The global commodity market is on the verge of food price inflation.
Soon after Russia’s withdrawal from the Black Sea deal, India decided to halt exports of non-basmati white rice to reduce local rice prices and ensure domestic supply. Contributing more than 40% to global rice exports, this ban has stoked fears of food price inflation. Countries with rising costs such as Thailand and Vietnam are experiencing surges in the price of the staple, as well as wheat, which is considered a substitute good.
Stabilisation
Despite escalating tensions in the Black Sea as of August, wheat prices seem to have stabilised. The US Department of Agriculture revised its expectations for Russian wheat exports for the 2023-2024 period to be a record 48 million metric tonnes, a quarter of global wheat trade, at the expense of Ukraine’s production, which has fallen to a third of pre-invasion levels.
Outlining the impacts of the Russia-Ukraine conflict illustrate the complex geopolitical landscape, and its ties to the global commodities market. While neutral suppliers such as Australia address the moral implications of these price movements, the future of global food security remains uncertain.
