Non-extension of Black Sea Grain Initiative Will Send Higher World Grain Prices and Benefit India and China

The Russian government on Monday suspended the Black Sea grain initiative to allow the safe passage of food grains through the Black Sea, a move that is likely to threaten global food security and drive up prices. The Black Sea grain deal has ensured the safe passage of more than 32 million tons of crop exports since it was signed in July 2022. As a result, U.S. wheat futures jumped as much as 4% earlier today, on July 17 on the news. On the Chicago Board of Trade, soft red winter wheat (W_1) for September delivery recently was +2.9% to $6.81 per bushel, new crop December corn futures (C_1) +1.4% to $5.21 per bushel.

According to Russian Foreign Ministry’s press release, “...almost a year ago, on 22 July 2022, two binding agreements were signed in Istanbul, Turkey – the Black Sea Initiative on the export of Ukrainian food and Russian ammonia and the Russia-UN Memorandum on the normalization of Russian exports of agricultural products and fertilizers. Contrary to the declared humanitarian goals, the export of Ukrainian food was almost immediately transferred to a purely commercial basis and, until the last moment, was aimed at serving the narrowly vested interests of Kyiv and the West.[...] Out of five systemic goals envisaged in the UN-Russia Memorandum not a single one has been accomplished”. In contrast, Western media blames Russia for taking lightly its responsibilities and abandoning the spirit of the last remaining positive accord.

One way or the other, the net winner of this routine cross-fingerpointing will certainly be China and India, which will get Russian exported grains by means of direct cross-border deliveries, and it will further boost their trade account surpluses.