Wheat Futures Spike on Russian Escalation; India Announces Ban of Rice Exports

Chicago wheat futures have surged over 9% since Monday as Russian forces attacked Black Sea ports for the third consecutive night following the end of the Black Sea Grain Initiative. The escalation marks an abrupt end to Ukrainian grain exports from the Odessa region. Any potential retaliation could cast uncertainty on grain shipments out of Russia.

The escalating situation is playing out as India’s just-announced ban of non-basmati white rice exports threatens to drive elevated prices of the global food staple even higher. Gro previously wrote about the possibility of a rice ban here. In an attempt to combat rising food price inflation domestically, the country has also restricted shipments of wheat and wheat flour, which Gro covered here.  

Odessa was one of Ukraine’s largest exporting terminals prior to Russia’s invasion in early 2022. It was also one of only three Ukrainian Black Sea ports that was able to export grains amid the ongoing war until Russia suspended its participation in the Black Sea Grain Initiative earlier this week. 

For over a year, Ukraine has managed to ship a sizable amount of grain, though its exports are still well below peak levels. The country shipped a total of 3.7 million tonnes of agriculture products — over half of which went through its grain corridor — in June. At its peak, 4.13 million tonnes were exported through the corridor in October 2022.

This week's attacks on Ukrainian ports significantly raise the level of disruption. Ukraine’s total exports averaged 4 million tonnes per month during the 2022/23 season. Blocking ports in the Odessa region means the country will be able to export no more than 3.8 million tonnes of agricultural products per month, dealing a major blow to food security in countries in North Africa, the Middle East, and Asia. 

Russia also said it will treat any ship heading to Ukraine as a military target from today onward, foiling any chance of insured ships entering or exiting Ukrainian ports. 

In the event of military retaliation from Ukraine or increased Western sanctions against Russian grain sales, the situation will almost certainly become more explosive.

Ukraine announced on Wednesday that it plans to establish a temporary shipping route through Romanian and Bulgarian waters in an effort to maintain its grain exports. However, if its ocean-based exports are halted until the end of the war, Ukraine will have to revert to rail exports through Europe, which will have ripple effects on world wheat trade flows and prices. 

Reduced Ukrainian planted area coupled with lower yields, as shown by Gro's Ukraine Wheat Yield Forecast Model, weighed on the 2023/24 winter wheat harvest. Rerouting grain would increase costs and reduce Ukrainian farmers’ profits, which could lead to less acreage next season, placing further pressure on supplies going forward.