Wheat Prices Fall as Russia Rejoins Black Sea Deal on Safe Passage

© Reuters.

By Geoffrey Smith

AiVIF.com -- World wheat prices fell nearly 6% after Russia said it will rejoin the UN-sponsored deal guaranteeing grain shipments out of Ukrainian harbors, in a hasty reversal of its previous suspension of the deal at the weekend.

The Russian Defense Ministry said it had received assurances from Ukraine that it would not use the UN-designated ‘safe corridor’ for shipments in connection with any future attacks on Russian shipping.

“The Russian Federation considers the guarantees received at the present moment as adequate,” the Defense Ministry said in a statement.

The deal on guaranteeing safe passage for exports from two of the world’s most important grain producers had been instrumental in bringing wheat and corn prices down after they spiked in response to Russia’s invasion of Ukraine in February. Oleksandr Kubrakov, Ukraine's Infrastructure Minister, estimates that the country has been able to export over 10 million tons of foodstuffs in the three months since the deal was agreed early in the summer – most of which has been destined for poorer countries in Africa and Asia, who were hit especially hard by the initial surge in prices.

Russia had pulled out of the deal on Sunday after Ukraine used seaborne drones to attack the Russian Black Sea fleet in the Crimean port of Sevastopol. It alleged that Ukraine had used the so-called "grain corridor" to get its craft closer to their targets. Ukraine claimed to have damaged the Black Sea Fleet's new flagship, the frigate Admiral Makarov, in the attack, while Russia acknowledged only minor damage to a minesweeper as well as unspecified commercial ships.

The threat of renewed attacks on Ukrainian shipping had caused prices to jump as much as 9% on Monday, before Moscow started to back-pedal, first saying that it only wanted guarantees that the corridor would be used for peaceful purposes.

"It can't easily pull off attacking a commercial vessel when Africa and Asia are closely watching," Oxford Economics analyst Evghenia Sleptsova tweeted.

"Exports of grain and foodstuffs from #Ukraine️ need to continue." Amir Abdulla, the UN coordinator of the Black Sea Grain Initiative, said via Twitter. He added that ship movements are set to resume on Thursday. No sailings are scheduled for Wednesday.

By 07:30 ET (11:30 GMT), U.S. wheat futures were down 5.7% at $850.50 a bushel, only just above their level before the attack on Sevastopol. Corn futures were down 2.1% and Soybean futures were down 0.7%.