Why is the Black Sea a big deal for wheat?
On February 24, 2022, Russia invaded Ukraine. This date marked the beginning of a war between two of the top wheat exporters in the world, limiting global access to millions of tonnes of the globe’s lowest cost wheat exports colloquially referred to as Black Sea wheat. Questions have risen as to how countries that depend on wheat exports from this region will adapt. Markets have already reacted to the uncertainty and new records for wheat prices continue to be set. In this article, we will look at what Black Sea wheat is, how the war is impacting production, and how the countries that have relied on Black Sea exports in the past are responding.
The most common wheat grown in both Ukraine and Russia is a milling quality, red winter wheat with a protein of 12 per cent or less. This wheat is a very popular export to price-sensitive Middle Eastern and African markets such as Egypt, Nigeria, Yemen, Sudan, United Arab Emirates, Tunisia and Morocco. For the 2020-21 crop year, International Grains Council (IGC) data reports that Russia and Ukraine exported over 21 million metric tonnes of wheat to nations in Africa. Black Sea wheat exports are also in demand from countries in West and Southeast Asia such as Turkey, Indonesia, Bangladesh, Philippines, Vietnam, and Thailand. According to IGC data, over 25 million metric tonnes of wheat were exported to Asia from Ukraine and Russia in the 2020-21 crop year.
Due to the war in Ukraine, the Black Sea has become an active conflict zone near the trade routes to Ukrainian and Russian ports. Concerned about how the war could impact the 2022 growing season, Ukraine banned exporting a range of agricultural products shortly after the war began to maintain adequate domestic supplies. The ban on agricultural exports was a reaction to the uncertainty of how much of Ukraine’s 2022 agricultural production will yield given the ongoing conflict, and if harvest will be possible in some regions.
For Ukraine, the long-term supply of wheat is a concern given the intensifying war in the east and southeast regions of the country that hold up to 45 per cent of Ukrainian planted wheat acres. While the Ukrainian agricultural product export ban allows for exporting wheat if specifically approved by the Ukrainian government, the majority of exports from Ukraine remain disrupted at the time of writing (April 25, 2022) due to the ongoing blockades of Ukrainian ports by Russian warships. Limited volumes of Ukrainian grain exports are shipping through Romania and Poland.
While Black Sea wheat exports originating from Russian ports slowed during the first weeks of the war, export shipments quickly resumed to reach nearly three million metric tonnes in March. Buyers and sellers continue to adapt to the new reality of ongoing trade and higher prices in recognition of the high risk and increased shipping complications through a warzone. In addition, the removal of major Russian financial institutions from the global financial payment system SWIFT has resulted in some negotiations occurring in rubles, an oddity in a market that almost always trades in US dollars.
As many international buyers are trying to avoid buying from the Black Sea region, wheat exporters in other regions now face higher demand. Price-sensitive buyers looking for milling wheat exports have turned to Argentina, Australia, Brazil, the European Union, India, Romania, and the United States, resulting in some of these export regions reaching their export capacity limits. While Canadian wheat exports may see increased interest, prices are at a premium in comparison to other options and position Canada as a seller of last resort for price-sensitive buyers. However, 2022 is proving to be a year of relative scarcity and if other countries are unable to meet the demand displaced by the war in Ukraine, Canada wheat exports may see interest from new customers.