Finance & economics
Agricultural commodities: grain storm
War in Ukraine will cripple global food markets
In october 1914 the Ottoman Empire, having just joined the first world war, blockaded the Dardanelles Strait, the only route for Russian wheat to travel to Britain and France.
The world had entered the conflict with wheat stocks 12% above the five-year average, but losing over 20% of the global traded supply of the crop overnight set food markets ablaze.
Having risen by a fifth since June 1914, wheat prices in Chicago, the international benchmark, leapt by another 45% over the following quarter.
Today Russia and Ukraine, respectively the largest and fifth-largest wheat exporters, together account for 29% of international annual sales.
And after several poor harvests, frantic buying during the pandemic and supply-chain issues since, global stocks are 31% below the five-year average.
But this time it is the threat of embargoes from the West that has lit a bonfire—and the flames are higher than even during the Great War.
Wheat prices, which were already 49% above their 2017-21 average in mid-February, have risen by another 30% since the invasion of Ukraine started on February 24th. Uncertainty is sky-high: indicators of price volatility compiled by ifpri, a think-tank, are flashing bright red.
Rabobank, a Dutch lender, reckons wheat prices could climb by another third.
But the damage to global food supply will extend far beyond the grain—and last longer than the war itself. Together Russia and Ukraine export 12% of the calories traded worldwide.
They rank among the top five exporters of many oilseeds and cereals, from barley and corn to sunflowers, consumed by humans and animals.
Russia alone is the biggest supplier of key ingredients in the making of fertilisers, without which crops falter or lose nutrients.
In February, even before the war started, a food-price index compiled by the un Food and Agriculture Organisation had reached an all-time high; the number of people deemed food-insecure, at 800m, was at its highest for a decade.
Many more could soon join them. Higher food prices will also stoke inflation, adding to the price pressures generated by dearer energy.
The fallout from the war will be felt in three ways: disruption to current grain shipments, low or inaccessible future harvests in Ukraine and Russia, and withered production in other parts of the world.
Start with shipments. In normal times wheat and barley crops are harvested in the summer and exported in the autumn; by February most ships are gone.
But these are not normal times: with global stocks low, big importers of Black Sea wheat, chiefly in the Middle East and North Africa, are anxious to secure more supplies. They are not getting them. Ukrainian ports are shut. Some have been bombed.
Inland routes, via the north of Ukraine and onwards through Poland, are too great a diversion to be practical. Vessels trying to pick up grain from Russia have been hit by missiles in the Black Sea. Most cannot get insurance.
Alternative sources are unaffordable. Last week Egypt cancelled its second wheat tender in a row after receiving only three offers—at a stomach-churning price—down from 20 a fortnight before.
More concerning still, exports of corn, of which Ukraine accounts for nearly 13% of global exports, usually take place through the spring until the early summer.
Much of it is normally shipped from the port of Odessa, which is bracing for a Russian assault.