Russia pulls out of grain deal with Ukraine, reviving concerns of global supplies

Russia announced on Oct. 29 that it is pulling out of the grain deal with Ukraine after it accused Ukraine of attacking Russian ships in Crimea, reviving concerns that global supplies may not be enough to meet global demand and reverse recent declines in prices.

The deal, signed July 22, had resumed grain and fertilizer exports through the Black Sea that had stopped since the war began on Feb. 24. It was brokered by the UN and Turkey and was scheduled to expire on Nov. 19.

Grain traders across the world have been concerned about the continuance of the grain corridor after Nov. 19.

The end of the deal for now is likely to tighten grain supplies globally in marketing year 2022-23 (July-June). Ukraine and Russia together accounted for over 25% of global wheat exports and 10% of world's corn shipments.

The resumption of exports has significantly contributed to lower prices of wheat and other commodities. The Food and Agriculture Organization (FAO) Food Index has declined for seven months in a row. The drop in prices for staple foods has indirectly prevented some 100 million people from falling into extreme poverty, the FAO said.

The Russian foreign affairs ministry noted that due to the actions of the Ukrainian military, the safety of civilian bulk carriers involved in the deal cannot be guaranteed, Russian state-owned news agency RIA Novosti said.

"In this regard, the agreement is suspended for an indefinite period, the corresponding instructions were given to Russian representatives in the Joint Coordination Center in Istanbul, which controls the transportation of Ukrainian food." the RIA Novosti added in its report.

"The Kiev regime carried out a terrorist attack on the ships of the Black Sea Fleet and civilian ships in Sevastopol, using drones," the Russian News Agency TASS said citing the Russian ministry of defense.

Ukraine has not said if it was responsible for attack and called the move by the Russian authorities as predictable.

"The Black Sea Grain Initiative has moved more than 9.3 million metric tons of grain and brought prices down around the world. It has been a tremendous success and must continue," the White House said in a statement.

Ukraine's ministry of infrastructure said six vessels containing 180,000 mt of agricultural products had left the country's ports on Oct. 28, heading for Africa, Asia and Europe. This included the bulk carrier LINA, which contained 25,000 tons of corn for Egypt, it said.

It added that 403 ships containing 9.1 million tons of products for Asia, Europe and Africa had left Ukrainian ports since the deal was brokered in July.

Ukraine complained Moscow had blocked almost 200 ships from picking up grain cargoes.

"There are more than 10 vessels both outbound and inbound waiting to enter the corridor," UN Coordinator for the Black Sea Grain initiative Amir Abdulla said in a statement, adding there was no agreement between the parties for the movement of vessels on Oct. 30.

Trade sources believe wheat importers are likely to turn to Australian and Canadian supplies.

The US Department of Agriculture scaled up its projection for Australia's wheat exports in MY 2022-23 to 26 million mt in October from 24 million mt seen six months earlier. Similarly, it has increased Canada's estimated wheat exports in MY 2022-23 to 26 million mt in October from 24 million mt seen six months earlier.

Meanwhile, Ukraine and EU agreed in September to continue the grain corridors formed in Europe to transfer Ukrainian grain through rail and road.

The initiative was introduced back in May as a way to increase Ukrainian grain exports amid the Black Sea ports blockade, which accounted for 90% of Ukrainian grain exports prior to Russia's full-scale invasion in February.