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Supply Chain

Deepening Russia-Ukraine Tensions Likely To Drive World Food Prices Up

Escalating tensions between global crop heavyweights Russia and Ukraine are likely to force wheat, corn and sunflower oil buyers to seek alternative shipments, driving up world food prices already near multi-year highs, analysts and traders said.

Global stock markets tumbled while crude oil surged on Tuesday as Europe's eastern flank stood on the brink of war after Russian President Vladimir Putin ordered troops into breakaway regions of eastern Ukraine.

With the two countries accounting for around 29% of global wheat exports, 19% of world corn supplies, and 80% of world sunflower oil exports, traders worried that any military engagement could impact crop movement and trigger a mass scramble by importers to replace supplies from the Black Sea region.

Seven-Month High

Chicago wheat futures jumped more than 2% on Tuesday, corn hit a seven-month high and soybeans also gained ground. All three key food and feed ingredients have rallied around 40% from 2021 lows, lifted by a decline in global production and robust demand.

"Disruptions in supplies from the Black Sea region will impact overall global availability," Phin Ziebell, agribusiness economist at National Australia Bank, told Reuters. "Buyers in the Middle East and Africa will be seeking alternative sources."

Around 70% of Russia wheat exports went to buyers in the Middle East and Africa in 2021, according to Refinitiv shipping data.

Diverting Vessels

Traders say the stepped-up tensions have already caused some buyers to divert vessels to other suppliers over concerns that any outbreak of war would lead to lengthy loading delays.

"Ships are avoiding entering the Black Sea because of the war risk," said one Singapore-based trader. "Supply disruptions are already taking place."

A lack of supplies from the Black Sea region could lift demand for the bread-making ingredient from the United States and Canada.

World food prices already hover near 10-year highs, led by strong demand for wheat and dairy products, the U.N. food agency said late last year.

There is additional support for agricultural markets stemming from a rally in crude oil prices, with increasing use of farm goods in making alternative fuels.

News by Reuters, edited by ESM – your source for the latest Supply Chain news. Click subscribe to sign up to ESM: European Supermarket Magazine.

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