Wheat and corn futures traded in Chicago jumped on Monday after Russia pulled out of a U.N.-backed deal that allowed millions of tons of grain to be shipped across the Black Sea.
Wheat futures on the Chicago Mercantile Exchange rose 7.7% to $8.93 a bushel on Monday morning and later rose 5.7% to $8.29 a bushel. Corn rose nearly 3 percent to $7 a bushel.
Analysts warned that Russia’s withdrawal from the deal would hit poorer countries, and the International Rescue Committee said it would “Catastrophic Consequences” on food supplies.
On Saturday, the Kremlin suspended participation in the transaction with Kiev, accusing the weekend of an attack on a ship in a port in the territory annexed by Ukraine in 2014, the latter called the reason a “false pretext”.
According to the agreement, Moscow guaranteed the safe passage of ships carrying grain from previously blocked Black Sea ports. The suspension affected 218 ships at once, the Ukrainian authorities reported. Of these, 95 had already left their ports, 101 were awaiting grain collection and 22 were loaded and awaiting departure.
The UN, Turkey and Ukraine, which have been working with Russia on the transportation of grain through the Black Sea, have informed Moscow that 16 ships will be moving through the grain corridor on Monday, both inbound and outbound. The UN said some of these ships had sailed.
The Kremlin’s statement surprised grain traders and analysts, who, although they doubt that it July deal didn’t expect a sudden stop.
Denis Vozniasensky, agriculture analyst at Rabobank, said the short-term impact of Russia’s move was evident in rising prices, which could persist if the deal is not preserved.
Ukraine, which has long been called the breadbasket of Europe, is the world’s fifth wheat exporter.
“If you’re a Ukrainian farmer, you have no incentive to plant, the longer it goes on, because the export market is gone,” Vozniasensky said.
Analysts said that G20 meeting in Bali in two weeks could be an important moment for wheat markets as it could ease tensions.
Vozniasensky added that the situation was worsened by floods and storms in Australia, another major exporter of wheat.
According to Vozniasenski, the supply from Australia could act as a buffer against rising prices, but it could worsen the volume and quality of the harvest, which increased price pressure.
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