Russia and Ukraine grain deal renews hope for inflation temperance

The global market experienced some ease from surging commodity prices following the partial implementation of the Russia and Ukraine grain deal. Russia and Ukraine had signed separate landmark deals with the United Nations (UN) and Turkey to resume grain and fertilizer shipments. Specifically, it was approved that the latter would export 22 million tonnes of its stockpiled grains from its key ports—Odesa, Chernomorsk, and Yuzhny—to a Joint Control Center (JCC) in Istanbul, where the UN will monitor the shipments. After a long wait, the first ship carrying 26,000 tonnes of corn left the Ukrainian port in July and arrived in Istanbul shortly after. According to market watchers, the importance of the deal includes the following:

1. To empty Ukraine’s silos ahead of another surge in grain harvest: Most of Ukraine’s grain harvest comes due between July and December. According to the FAO, 30% of the available grain storage was filled with the 2021 harvest as of July 2022. Hence, farmers in the waiting season are preparing early for incoming crops in H2’22.
2. Quick response to the surging food crisis: The UN had warned that the Russian/Ukraine crisis could result in a hunger catastrophe if a deal did not work out. The deal is expected to improve Ukraine’s food export and positively affect food availability and pricing across European markets.

Figure 1: Ukraine’s calendar for its major crops

Source: USDA

This grain deal highlighted that the “bread-basket of Europe” had experienced severe supply bottlenecks in shipping its agricultural products, particularly after Russia took over its major ports. The Ukrainian ministry even alluded to an average grain export of 873,000 tonnes between March and June 2022 (vs a mean of 6 million tonnes per month before the crisis). Some of these commodities were shipped via underground rails and ports to neighbouring countries (Romania and Poland). While this strategy was proactively implemented before the war, reduced volumes reflect that these routes cannot compensate for the lost exports as potential supply chains are unresolved.

A light at the end of the tunnel for Nigeria?

Nigeria’s low wheat production, 1.3% of its consumption (five-year average), reflects its continued dependence on wheat imports. Data from the National Bureau of Statistics (NBS) revealed that the bulk of imported wheat in Nigeria came from the United States, Canada, and Russia in the last seventeen quarters. Thus, the ongoing grain deal may positively impact wheat availability and pricing in Nigeria for the rest of the year. That said, on a year-on-year basis, wheat prices are likely to remain elevated, given the cumulative impact of the geopolitical conflicts in the months leading up to the deal and domestic FX worries. #MEMBA11