World food supplies at risk as Russia withdraws from Black Sea deal

  • Grain supply to Africa, M.East at risk after Russia pulls out
  • Europe is facing a shortage of wheat as Ukrainian supplies are hit
  • Australia is unlikely to help as shipping slots are reserved until February
  • Palm prices jump 4% on sunflower oil woes in Ukraine

SINGAPORE, Oct 31 (Reuters) – Russia’s weekend withdrawal from a U.N. deal on Black Sea grain exports is likely to hit shipments to import-dependent countries, exacerbating a global food crisis and causing gains in prices.

Hundreds of thousands of tonnes of wheat earmarked for delivery to Africa and the Middle East are at risk after Russia’s withdrawal, while Ukrainian wheat exports to Europe will be cut, two Singapore-based traders said.

Russia on Saturday suspended participation in the UN grain deal for an “indefinite term” after what it said was a major Ukrainian drone attack on its Black Sea fleet in Crimea.

“If I have to replace a ship that was supposed to come from Ukraine, what are the options? Not really,” said a Singapore-based grain trader who supplies grain to buyers in Asia and the Middle East.

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Chicago wheat futures on Monday jumped more than 5% and corn rose more than 2% on fears about supplies.

Earlier this year, global wheat prices jumped to an all-time high and corn hit a 10-year high as Russia’s invasion of Ukraine added fuel to a rally from adverse weather and COVID-19 supply disruptions.

Australia, a key grain supplier to Asia, is unlikely to be able to fill any supply gaps, with shipping slots booked until February, traders said.

Shares in Australia’s Graincorp (GNC.AX) – which posted a five-fold jump in H1 profit due to supply constraints stemming from the Russia-Ukraine conflict – rose more than 7%.

No ships were moving through the maritime humanitarian corridor established on Sunday. The UN, Turkey and Ukraine, however, pressed to implement the Black Sea grain deal and agreed on a transit plan on Monday for 16 ships to move forward, despite Russia’s withdrawal.

“We have to see how the situation develops. It is not clear whether Ukraine will continue to ship seeds and what will happen to Russian exports,” said the Singapore-based grain trader.

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Asian buyers booking cargoes of Ukrainian grain include Indonesia, the world’s second largest grain importer, although the region typically relies on Australia and North America.

In recent deals, Indonesian millers bought four cargoes or about 200,000 tonnes of Ukrainian wheat for November shipment in deals signed in recent weeks, traders said. Some Vietnamese feed mills that bought Ukrainian grain are also likely to suffer.

Last week, a government agency in Pakistan bought about 385,000 tons of wheat in a bid likely to come from Russia and Ukraine.

“We are not sure whether Russia will continue to export grain or whether it will be safe for ships carrying Russian grain to ship from the Black Sea even as Ukrainian exports remain blocked,” said a second Singapore-based trader at a company international

Ukraine’s grain exports to Europe scheduled for November are likely to be affected as well.

“As far as Europe is concerned, wheat is a bigger problem than wheat as we enter the peak season for Ukrainian wheat in November,” said the second trader.

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Russia’s decision is expected to support global vegetable oil prices as it threatens Ukraine’s sunflower oil exports to key destinations, including top edible oil importer India.

Malaysian palm oil futures jumped more than 4% on Monday.

Under the UN-brokered grain agreement, a Joint Coordination Center (JCC) made up of UN, Turkish, Russian and Ukrainian officials approves the movement of ships and inspects the ships. More than 9.5 million tons of wheat, corn, sunflower products, barley, rapeseed and soybeans have been exported from the Black Sea since July.

Although global prices for agricultural products have come off record highs in recent months, local retail food prices remain high and are now facing higher prices.

“Typically, it takes about two months for higher grain prices to filter through the supply chain and affect consumers at the retail level,” said a Sydney-based analyst.

“But food processors don’t have a lot of forward coverage, so it’s likely to be much faster.”

Reporting by Naveen Thukral; Edited by Tom Hogue

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