Last Friday, the world breathed a sigh of relief as Russia, Ukraine and Turkey signed an agreement which would open channels from Ukraine so that once again it could export wheat. The agreement had an immediate effect on the price – dropping it to pre-war levels.
But the very next day a Russian missile strike on a Ukrainian port – the same one which had just opened for exporting wheat – raised uncertainty in the market, slowly pushing prices up once again.
Although the prices have dropped significantly with assurances that exports from Ukraine will continue, the world and Trinidad and Tobago by extension are still very much in the middle of a food crisis that could go from bad to worse in an instant.
Companies such as NFM now have to become more agile to secure the best food with the best prices as markets become smaller and more volatile.
Russian, Turkish and Ukrainian diplomats brokered an agreement between the three countries to allow safe access for ports on the Black Sea to transport wheat. The deal would promise to open the way for some 20-25 million tons of wheat to be exported, giving a much-needed ease to the grain crisis currently affecting Africa and the Middle East.
The deal was made in Istanbul, Turkey. It would be in force for 120 days and would include safe passage across the Black Sea from the Ukrainian port of Odesa along with two other ports, with UN, Turkish Russian and Ukrainian officials co-ordinating to ensure no weapons are smuggled across borders.
The deal had an immediate effect on the price of wheat, dropping futures in Chicago by 5.9 per cent to US$7.59 per bushel. In Europe, prices for delivery in September dropped to US$325 a ton.
Tymofiy Mylovanov, president of the Kyiv School of Economics and adviser to the Zelensky administration, was hopeful on Friday that the deal would bring relief.
“It is great to see diplomacy at work during the war. Thank you Ukrainian and international diplomats for your professional work,” he said in a tweet. “Let’s see how it works. I hope it does.”
It didn’t work. On Saturday, Russian missiles struck part of the Odessa port as it began preparing shipments of wheat to cross the Black Sea. On Sunday Russian Foreign Ministry spokesman Maria Zakharova said Russians hit a Ukrainian military boat in the port of Odessa with “high-precision missiles.”
Zelensky’s administration confirmed that silos and other infrastructure necessary for the export of wheat were not damaged by the missile strike, but the attack left the world uncertain that Russia would stay true to its word. That has also affected the price of wheat, raising it three per cent to US$7.95 per bushel.
Although the world seems surprised by the actions of the Russian government and military, the Ukrainians said it was par for the course – going back on deals was part of Russia’s strategy.
“This is nothing new,” Mylovanov said in a tweet. “Russia always steps up violence, either prior to singing an agreement of any important negotiations or right after that. This happens with prisoners’ exchanges, Minsk 1 and Minsk 2, in 2014 (an earlier Russian invasion of Ukraine) and now with evacuation corridors.”
He said the strategy is to intimidate and convince people they are helpless in dealing with Russia, to bully countries into giving Russia what it wants. The plan, Mylovanov speculated, was to scare cargo ship companies, and decrease the capacity of the ports.
“The attack in Odessa is a reminder to everyone who believes that it is possible to negotiate with Russia and that ‘Ukraine should make some concessions and strike a deal with Russia’ – no deal is possible,” Mylovanov said.
A Deutsche Welle (DW) report from Germany said Ukraine, owing to the war, is actually overstocked with wheat, which at the beginning of the year was destined for ports around the world and should have been shipped earlier this year just before war broke out. Farmers said that at this point they cannot get the wheat off their hands – traders could take it for storage, but they would not get paid until the wheat is bought and transported.
Before the deal between Russia, Turkey and Ukraine, Ukrainian transporters tried to direct the flood of wheat by road, by truck or on river barges, instead of the massive freighters that are normally used. But that has extended the transport time from days to weeks.
In the Black Sea, more than 100 freighters wait to enter port via the Danube-Black Sea canal in Romania. The river ports simply do not have the capacity to dock the larger ships.
As a result, exports out of Ukraine are only at a quarter of pre-war levels, according to the DW report.
TT could benefit from low prices next year
Despite the steady climb in prices because of the attack on Odessa over the weekend, the price of wheat is still much lower than pre-war levels. In February, just before Russia began its war on Ukraine, wheat sold at US$7.95 a bushel, according to Trading Economics.
The outbreak of war pushed the prices up to US$12.48 per bushel in March, the second highest price for the year. In May the price went even higher, to US$12.77 per bushel.
In March National Flour Mills (NFM) CEO Ian Mitchell said NFM’s priority was to take steps to immediately secure wheat for TT’s consumption amid threats of shortages. He told Business Day wheat was already secured for the year. Mitchell said the drop in prices will eventually have an effect, but it would not be immediate.
“Because of how we purchase, and in particular because of the situation in Ukraine, where we were forced to secure supplies for the rest of the year, we put all of our positions in place for 2022,” he said. “What it therefore means is that if there's a change in price now, you are not likely to see the impact of that until later on.
“Changes in the price of wheat would not automatically mean that the cost of production in TT would go back to where it was last year,” he added. “Even when the cost escalated it took months before we actually imposed an increase in price locally.”
He said futures, or projections of the price of wheat per bushel, are one factor in several that affect the overall price. Others, including freight and basis – the cost of getting grain from the farms or storage facilities to the ports – have increased.
But overall, he is hopeful that once low prices persist, they would eventually redound to lower production costs, and a cheaper supply of flour. He said the impact would be better seen at the beginning of 2023, as wheat would be purchased at lower futures.
“What we can say is that the movement downwards at the end of last week is a good sign and it suggests in the longer term, we can in fact see some softening of prices. We are hoping that the overall cost would start to go back down to what it was at the beginning of the year and last year.”
The tides of war
Mitchell, despite his positive outlook for the next year, was well aware of the shifting tides between Russia and Ukraine, and how they would affect the price of wheat in the coming months. He said short-term changes will continue as the war progresses, and NFM continues to stay on top of these changes to ensure TT’s wheat supply is secured at the best possible price.
“We really have to wait a while to see how the market is,” he said. “But the initial signs show that things could be moving in the right direction.”
Still, he said, NFM is already taking steps to secure wheat for next year, taking advantage of the current futures.
“We are already making arrangements for 2023. In fact some positions (bookings) have already been secured. We have a team that is constantly monitoring the changes in the environment and making recommendations on target purchase prices, based on the prevailing conditions.”
The task will be difficult given the changing conditions in the wheat market constantly being pressured by the Russia/Ukraine war.
Those two countries together supply 30 per cent of the world’s wheat exports. The war means the supply of wheat from both is now stymied.