Most observers of the global agricultural market were focusing on the Black Sea at the weekend where UN representatives and the Turkish government engaged with the Russian and Ukrainian governments in an effort to extend the Black Sea grain deal, which has just expired.

Encouragingly, the deal has been extended for another 120 days and will again be reviewed after this period. This initiative started in July 2022 and its primary goal is to allow grain movement from Ukraine to the world market without military attack by the Russians.

Since the deal started, Ukraine has exported about 25-million tonnes of grains and vegetable oils. Global food prices have also moderated considerably over that period, partly for this reason. In February the Food and Agriculture Organisation (FAO) global food price index was at 130 points, down 8% from July, when the initial deal was reached.

While the intention was to increase grain exports from Ukraine, Russia has arguably also benefited from the grain deal through increased wheat exports. Russia typically exports about 35-million tonnes of wheat a year. Its largest markets include Turkey, Egypt, Azerbaijan, Kazakhstan, Nigeria, Bangladesh, Sudan, Latvia, Saudi Arabia, Yemen, Cameroon and Israel.

Russia also had an incentive to continue with the Black Sea grain deal as it had about 44-million tonnes of wheat for export in the 2022/2023 marketing year, up 34% from the previous year. This is according to data from the International Grains Council (IGC), whose preliminary projections for the 2023/2024 marketing year suggest Russia will again have ample supply due to strong production. Exports are forecast at 42-million tonnes. The Black Sea grain deal, initially set to assist Ukraine, must remain in place for these exports to continue from Russia with minimal interruption.

Ukraine will also remain a critical player in the global wheat market, though its production has declined significantly due to the war. The IGC forecast for Ukraine’s 2022/2023 wheat exports is 14.5-million tonnes, down 23% from the previous season. The preliminary projections for the 2023/2024 marketing year paint an even bleaker picture of decline in Ukraine’s wheat exports to 11-million tonnes. This reflects the harsh production conditions in Ukraine due to the invasion by Russia and shortages of some farm inputs, all of which have led to a decline in the area farmed and yields.

Still, the sharp decline in Ukraine’s wheat exports will not mean the world will face a shortage of wheat. The IGC forecasts 2022/2023 global wheat exports at 199-million tonnes, up 1% from the previous season. Australia, Canada, the EU, Kazakhstan and Russia are expected to boost the available supplies for the world market.

This improvement in export supplies means global wheat prices could continue to moderate over the medium term. The significant risk market players have worried about was the outcome of the Black Sea grain deal, which has turned out positively for now. Still, the Black Sea geopolitical tone and war remain a major risk to the global grain and vegetable oil market as the uncertainty is likely to continue for the foreseeable future.

The extension of the grain deal is a welcome development, but the period is relatively short. Market players would have preferred a longer time frame to clear up uncertainty about shipments for a prolonged period. Notably, the reprieve at the weekend benefits all wheat- and vegetable-importing countries and users of the products as it will apply downward pressure to prices.

SA is one of the wheat importers that stands to benefit from softer global wheat prices. Ultimately, the events of the weekend are positive for global food prices, despite the uncertainty about events when the current extension ends.

Written for and first appeared on the Business Day.

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