Russia ends Ukraine grain deal What this means for prices — and Putin

Vladimir Putin is signaling that he wants to withdraw from the Ukraine grain deal this time. The Black Sea Grains Initiative, as the deal is formally known, helped Ukraine maintain more or less normal exports of wheat, corn and other staples over the past year, and curbed world prices after Russia’s February 2022 invasion.

Moscow pulled out of the deal on July 17, saying the United Nations and Western partners had reneged on obligations to facilitate grain and fertilizer exports to Russia. Putin underscored this by aggressive bombing of Ukrainian ports. “The expiry of the agreement risks holding global food security to ransom,” said David Miliband, head of the International Rescue Committee.

Markets are also spooked. Chicago Futures for wheat, which Ukraine supplies about a tenth of world exports, rose 6%. However, it is not a panic in terms of ingredients. There is still a good chance that Russia will rejoin the deal.

From a cold business perspective, it’s a bad deal for Moscow, allowing its wartime adversary to make billions while undercutting the cost of sales to Russia’s own competition. But the grain deal benefits Putin’s two most important remaining international friends, China and Turkey. Beijing has been the best customer of Ukrainian exports so far. Turkey brokers all exports and reaps global prestige.

“The grain deal is important to both Turkey and China, and there is no alternative to Russia’s dependence on them,” said Alexandra Prokopenko, a scholar at the Carnegie Russia Eurasia Center. The accidental damage caused by Russian missiles to the Chinese Embassy in Odesa, Ukraine’s main port, will not ease relations with Beijing.

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Prokopenko says Putin may be angling for a face-saving re-entry when he hosts a summit of African leaders from July 27. Putin previously dangled free Russian grain to “African countries in particular need”.

Second, Ukraine has rapidly developed its Plan Bs. Michael Maktowitz, senior commodity analyst at Rabobank, says this has increased capacity eightfold at the buffer grain terminals near the mouth of the Danube River. From there, shipments can reach the Black Sea via neighboring Romania or Moldova. Overall, Ukraine could achieve about 80% of its pre-war grain exports through alternative routes protected from Russian attack, Maktowitz figures.

Oksana Antonenko, a global fellow at the Kennan Institute, said despite Russia’s muscle-flexibility, Kyiv could send the ship from its own Black Sea ports. “Russia’s military power is very weak,” he says. “If the Western Allies provide insurance funds, ‘running a blockade’ is entirely possible.”

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Russia’s Defense Ministry has aimed to squash such talk, warning that merchant ships bound for Ukraine would be considered “involved” in the war.

Markets have already factored in significant war damage to Ukrainian agriculture, Maktowitz says. World prices for wheat are about a quarter higher than pre-pandemic levels. Maize, Ukraine’s other strategic farm export, accounts for more than 40%. 15% of Ukraine’s grain capacity is offline due to its proximity to war zones.

“Ukraine is a top heavyweight in world agriculture,” Maktowitz says. “Continuous economic scaring for its farmers will push up grain prices.”

For that, there is no clear conclusion.

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