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Global price spikes in response to expired grain deal prove to be temporary

  • Key Message Update
  • Ukraine
  • July 2023
Global price spikes in response to expired grain deal prove to be temporary

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  • Key Messages
  • Key Messages
    • In mid-July, Russia announced its decision to suspend participation in the Black Sea Grain Initiative which subsequently expired on July 18. Since then, Russia has intensified attacks against port and grain storage infrastructure in various parts of Ukraine. The day after the agreement expired, Russia began targeting the port of Odesa with missile and drone strikes, causing damage to port, oil, and civilian infrastructure and destroying a reported 60,000 tons of grain. Several days later, Russian drone attacks damaged grain storage infrastructure in ports on the Danube River. Meanwhile, in late July, Ukraine reportedly began a new phase of its counteroffensive by deploying additional troops to southeastern areas, including the Zaporizhzhia frontline. This development follows limited progress since the beginning of Ukraine’s counteroffensive in June. 

    • Global wheat and maize prices rose in response to the expiration of the Black Sea Grain Initiative agreement and Russian strikes on port and grain storage infrastructure, peaking around July 24-25. However, prices subsequently declined again, and by the end of July were similar to prices recorded prior to the spike. According to Trading Economics, price declines are attributable to improving weather and production prospects in key exporting countries alongside a downward revision to USDA’s forecast for global wheat consumption. Despite the price volatility, the FAO’s global cereal price index declined by half a percent from June to July, driven largely by a 4.8 percent decline in coarse grain prices. 

    • As of late July, Ukraine expects to harvest 69 million tons of grain and oilseed crops in the current harvest season. Based on domestic needs of around 18-19 million tons, more than 50 million tons are expected to be available for export. According to the deputy chairman of the Ukrainian Agrarian Council, the forecasted production levels position Ukraine to earn an export income of approximately 20 billion USD despite a six percent decline in production this year compared to last year.

    • Though challenges remain, Ukraine’s export supply chains are in a better position than last year, based on statements by the Ukrainian Agrarian Council deputy chairman. In early 2022, the invasion severed Ukraine’s supply chains with little notice, leaving around 20 million tons of backlogged agricultural commodities awaiting export. This year, the backlog amounts to only around nine million tons of grains and oilseeds. Additionally, supply chains have had some time to adapt since the invasion, and Ukrainian officials have worked to expand export capacity via rail, land, and Danube River ports. For instance, exports of agricultural goods via the Danube River reportedly increased to 2.2 million metric tons in May 2023, up from 55,000 metric tons a month around the same time last year. Additional efforts are underway to develop alternative export routes further; in late July, for example, the Baltic states indicated a willingness to offer the use of five ports for Ukrainian grain exports, which would be transported to the ports by rail. However, exports via river, road, and rail networks will remain more expensive than exports via seaports, and it will take time to address challenges affecting the expansion of alternative export routes, including but not limited to the development of export infrastructure and reaching export agreements with neighboring countries.

    This Key Message Update provides a high-level analysis of current acute food insecurity conditions and any changes to FEWS NET's latest projection of acute food insecurity outcomes in the specified geography. Learn more here.

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