The extension of the Black Sea Grain Deal for two more months is a positive development and help support the moderation in global grain prices and food inflation.

A brief background for folks that haven’t been following this stuff; the “Black Sea Grain Deal” started in July 2022, facilitated by the United Nations representatives, the Turkish government, and the Russian and Ukrainian governments.

Its goal is to allow grain movement from Ukraine to the world market without military attack by the Russians. This has been a success, as Ukraine has exported over 25 million tonnes of grains and vegetable oils since the deal started.

Notably, global food prices have also moderated considerably over time, partly due to increased shipments of grains and vegetable oils from the Black Sea region to the world market. In April 2023, the FAO Global Food Price Index was at 127 points, down by 9% from July 2022, when the deal was reached, and down 20% y/y.

While the intention was to increase grain exports out of Ukraine, Russia has arguably also benefitted from the grain deal through increasing wheat exports.

Russia typically exports, on average, about 35 million tonnes of wheat a year. Its largest markets include Türkiye, Egypt, Azerbaijan, Kazakhstan, Nigeria, Bangladesh, Sudan, Latvia, Saudi Arabia, Yemen, Cameroon and Israel. The data for Russia’s exports over the past few months is unclear.

Still, we believe Russia also had more incentive to continue with the “Black Sea Grain Deal” as the country had about 44 million tonnes of wheat for exports in the 2022/23 marketing year, up 34% from the previous year.

The International Grains Council’s preliminary projections for the 2023/24 marketing year suggest that Russia will remain with ample supplies on the back of sound production. Thus exports could be at 42 million tonnes.

For these exports to continue out of Russia with minimal interruption, the “Black Sea Grain Deal”, initially set to assist Ukraine, must remain in place.

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