Grain prices surge as Russia, Ukraine trade Black Sea strikes

Global grain prices — wheat in particular — have surged, with analysts warning that the cost of bread and other staple foods could rise this year. Russia and Ukraine, now more than four years into their war, have been trading strikes on Black Sea ports and merchant vessels in what amounts to a maritime blockade, pushing grain exports from the region to the brink of collapse.

The December contract for soft red winter wheat (SRW) on the Chicago Board of Trade (CBOT) — the global benchmark for wheat futures — traded between $6.99 and as high as $7.02 per bushel. Prices broke through the $6.80 level last week, hitting a more-than-one-month high, and have continued to climb since.

Hard red winter wheat (HRW) on the Kansas City Board of Trade (KCBT), the benchmark variety most widely used in bread-making, has climbed even higher. The December contract traded in a range of roughly $7.70 to $7.76 per bushel, near its highest level in almost three years.

Traders in the wheat futures market have taken to calling the rally a "Black Sea risk premium" — a price shift driven by the sharp drop in wheat exports as the two warring nations effectively blockade each other's access to the sea.

According to the Financial Times, Black Sea ports — including Ukraine's largest Danube River terminal and Russia's Novorossiysk terminal — have come under concentrated attack over the past two weeks. Russian airstrikes have halted maritime shipping through Odesa, Ukraine's largest seaport on the Black Sea.

Ukraine has struck back with its own attacks on Black Sea ports. Last week, Ukrainian forces hit a grain terminal in Novorossiysk, prompting Russia to suspend operations at all three of its major grain terminals. The mutual bombardment has left Black Sea export routes effectively paralyzed.

Russia is the world's largest wheat exporter, and Ukraine ranks fifth globally. Together, the two countries account for roughly 30 percent of global wheat supply.

According to Oxford Economics, disruptions at ports on the Sea of Azov and the Black Sea are expected to reduce global grain supply by 86 million tons this year — about 17 percent of global grain exports. The research firm projects Russian grain exports will fall by 52 million tons and Ukrainian exports by 34 million tons. Even if Ukraine makes full use of alternative routes via rail and the Danube River, it is expected to export only about 17 million tons.

Andrei Sizov, managing director of SovEcon, a research firm specializing in Black Sea agricultural markets, called the situation "worse for the wheat market than a Strait of Hormuz blockade would be for oil," adding that given no end to the Russia-Ukraine war appears in sight, "the fallout we are going to see will be larger."

Grain prices spiked to record highs following Russia's invasion of Ukraine in 2022, but fell after the UN brokered the Black Sea Grain Initiative, which allowed ships carrying food to pass freely. That agreement collapsed in July 2023 as the war continued, after which Ukraine developed alternative export routes — overland to the Romanian port of Constanta and along the Danube River.

As the conflict has intensified, however, both sides have escalated their attacks on Black Sea ports and the merchant ships that use them, turning food security into a front-line battleground. Wheat prices were already under upward pressure from the effects of a super El Niño, drought and fertilizer shortages linked to the war in Iran — and analysts warn that the latest escalation will push them even higher.

"The recent intensification of fighting in the Sea of Azov and Black Sea region could trigger a more severe global food price shock," said Tatiana Orlova, chief economist at Oxford Economics. "We expect global food prices to rise 11.8 percent this year and 4.8 percent next year."