As the Ukraine grain deal expires, the world braces for more inflation
One of the main concerns when the war in Ukraine started was ensuring the continuation of the global food supply chain. This was one of the glimmers of hope during the ordeal. Unfortunately, the deal has now expired. In addition to the symbolic importance of the deal, which showed that antagonists could sit down and work out a deal for the good of humanity, the deal was also important for food security for people around the world, and for keeping down inflation, which was already exacerbated by an energy crisis.
What was the original deal? What can we expect to happen now? And, how will consumers around the world deal with the coming reality?
The original deal
The Black Sea Grain Initiative, also known as the Initiative on the Safe Transportation of Grain and Foodstuffs from Ukrainian ports, was a pact involving Russia, Ukraine, Turkey, and the United Nations (UN). The war in Ukraine in February had a profound impact on maritime grain shipments from Ukraine, a significant exporter via the Black Sea. In fact Ukraine is known as the world’s bread basket. Moreover, Russia temporarily suspended its grain exports, making the situation more difficult. Consequently, global food prices surged, and there was a looming threat of famine in lower-income nations.
In an effort to tackle this issue, talks commenced in April, hosted by Turkey, which controls the maritime routes in the Black Sea, and received support from the UN. The resulting agreement was signed in Istanbul on July 22, 2022, and remained valid for a period of 120 days. The agreement outlined procedures to facilitate the safe export of grain from specific ports, aiming to address the food crisis experienced in 2022. A joint coordination and inspection center was established in Turkey, and the UN acted as the secretariat.
Following the agreement, wheat prices dropped to pre-war levels. This implies that the deal was indeed a success while it lasted. It also leads to concern now that the deal is expiring.
What are the expected effects of not having the deal
Russia’s decision to withdraw from the wartime agreement enabling the export of Ukrainian grain through the Black Sea has sparked renewed concerns regarding worldwide food security. Analysts view the termination of the initiative as a setback and a detrimental blow to food markets. Just hours before the agreement was set to expire, Russia announced on Monday that it would not extend the Black Sea Grain Initiative.
Following the announcement, the prices of wheat, corn, and soybeans all experienced an increase. Wheat futures witnessed a 3% surge on Monday, reaching a peak of 689.25 cents per bushel. This level was the highest since June 28, when the contract traded as high as 706.25 cents.
Meanwhile, corn futures skyrocketed, hitting a high of 526.5 cents per bushel, and soybean futures surged to a peak of 1,388.75 cents per bushel. Consumers are anxiously awaiting updates about Fed rate hike in light of the news, as this is a main tool used to fight inflation.
It’s important to note that despite this rise, wheat prices still remain significantly lower than the peak levels observed in May of the previous year, which reached 1,177.5 cents per bushel.
How consumers are dealing
Consumers around the world are likely to be affected and looking for alternative mechanisms to take care of their finances. For example, while Canada had been lowering its inflation rate to just above 3%, this is likely to be a setback to those efforts. Consumers are looking for new ways to protect their finances.
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Consumers around the world will be looking for creative solutions to their household budgeting needs. Others will likely be cutting from budget areas such as travel or dining out, with ripple effects for the economy at large.