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End of the blockade: how much will the grain market be relieved?

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Status: 01.08.2022 4:08 p.m.

The resumption of grain exports via the Black Sea is welcomed around the world. How important are the agreed delivery quantities for the global market?

By Detlev Landmesser, tagesschau.de

This morning, the first grain carrier left the port of Odessa since the start of the Russian invasion in February. The resumption of grain exports via the Black Sea, agreed on July 22, has been welcomed around the world. An EU spokesman said it was a first step towards easing the global food crisis triggered by the war in Russia.

In fact, the war in Ukraine has greatly exacerbated the hunger crisis in many countries. According to the UN, around 50 million more people are starving to death as a result of war. Prior to the war, the Middle East and North and East African countries such as Egypt, Libya and Somalia relied heavily on supplies from Russia and Ukraine.

Significant relief

To what extent can the now agreed deliveries relieve the market and alleviate the needs? If you look at the world grain market, the agreed size of an export of around 22 million tonnes of grain through the corridors that have now been opened is quite relevant.

The London-based International Grains Council (IGC) expects a gap between global production and consumption of around 24.7 million tonnes for the 2022/23 crop year due to the war in Ukraine. This means that many countries will have to touch their granaries, especially in the coming year. Such a situation generally causes increased nervousness in grain markets. The IGC estimates global storage for 2022/23 at 607.5 million tons, which is also higher than the previous year’s value due to the war. According to reports from Kyiv, more than 20 million tons of grain from last year’s harvest are still awaiting export to Ukraine.

If the agreed quantities actually reached the regions in crisis, this would significantly improve the supply situation. However, serious doubts have hovered over Russia’s willingness to fully implement the agreement since its conclusion.

Nothing has yet been said about the affordability of grain products in different countries. Governments in crisis regions generally try to improve the supply of their population through various market interventions, also in order to defuse the problem, which is essential for political stability. Prospects for an adequate supply vary from country to country.

Important Wheat Price Indicator

The price of wheat is an important indicator of world cereal supply, even if it is sometimes distorted by speculative peaks. Concerns over the war in Ukraine pushed the fashionable quotation on the French futures market MATIF to a record high of 438 euros per tonne in mid-May. Since then, the price has again fallen significantly. In particular, the negotiations on the opening of the Black Sea routes have considerably relieved the market since mid-June. At the start of the afternoon, a ton was quoted at 338 euros, almost two percent less than on Friday.

The market remains tight

A year ago, however, a ton of wheat was still available for around 220 euros. This shows how tight the grain market is still.

In addition to the uncertainties regarding the export of the quantities already produced, the occupation and devastation of arable land and infrastructure severely restrict agricultural production in Ukraine. Ukrainian President Volodymyr Zelenskyy recently warned that this year’s grain harvest is likely to be only half of the usual harvest. In the record year 2021, the country still produced 33 million tonnes. Russian President Vladimir Putin, meanwhile, announced record exports of 50 million tonnes for this crop year – apparently including the more than two million tonnes just harvested from the annexed Crimean peninsula.

Cereal prices are not only market indicators, they also induce producers to increase their crop depending on the market situation. For example, the IGC expects significantly higher harvests in Brazil and Canada in the coming year. However, India, the second largest wheat producer after Russia, shows that it is not just the war in Ukraine that has tightened market conditions. In recent years, climate change has been increasingly felt here. Due to recent heat waves, the subcontinent will likely be able to harvest much less in the coming year.

Source www.tagesschau.de

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