After a volatile six months for wheat prices, a recent port deal hints at future grain stability. Historically, Ukraine accounts for about 10% of global wheat exports. As this season’s harvest began, blockaded ports in the Black Sea made global distribution of the crop seemingly out of reach. Not only did the heavy presence of the Russian Navy in the Sea deter trade, but Odessa’s major grain port was planted with mines to ward off Russian invasion.
Rail is the best alternative to boat for grain transport, but bottlenecks exist that also render those routes impassable. Rail transportation regulations in Ukraine vs. Eastern Europe make rail transportation complicated. Truck is the last resort, but heavy road congestion and crowded border crossings make transit via truck an unviable replacement.
“Physically, you just cannot really get this grain out of the country by railway, by trucks, and by boats–it’s simply not possible,” said Oleg Nivievskyi, Vice President of Economics Education at the Kyiv School of Economics.
But on July 22, a new deal was secured with help by the United Nations and Turkey to restart grain exports from the Black Sea. While this removes the threat of the Russian Navy, the existing problems of mines and ship shortages remain. As of the time of the deal, wheat prices reached their lowest point since March, showing market optimism.
July 23 brought the launch of four Russian Kalibr missiles on the sea port of Odessa, sparking new questioning of Russia’s intentions. Two missiles were shot down by air defense systems, and two struck port infrastructure. It remains unclear whether this attack was an isolated event or if Russia does not plan to uphold their trade agreement.
Meanwhile, most of the U.S. completed their wheat harvest throughout the month. This influx of supply, combined with more favorable weather conditions, has contributed to a recent drop in the price of wheat. The most recent USDA report on June 27th ranked the wheat of the 18 states that planted 89% of the 2021 winter wheat acreage.
Forty-three percent was ranked poor or very poor in condition.
“Farmers across America are struggling right now to grow a good wheat crop. Farmers in Oklahoma and Kansas are not growing the wheat crop that we’re accustomed to and as those supplies dwindle, the consumer will pay more,” said Marc Arnusch, President and CEO of Marc Arnusch Farms.
Although these new developments grant greater insight into the future of wheat supply, the situation still remains largely unpredictable, especially on the part of Black Sea trade. Russia continues to display contradictory actions and make unpredictable decisions, even as the first grain ships leave their ports.
