Wheat drops amid Ukrainian bid to restart grain deal

Wheat fell more than 3% as Ukraine is taking steps to restart the grain-export deal that Russia exited this week, though there’s doubt over whether the goal is realistic.

Ukrainian President Volodymyr Zelenskyy instructed his top military commanders to prepare “actions” that could allow the grain deal to continue functioning. He also told the Foreign Ministry to prepare “analogous diplomatic steps.” The statement on Zelenskyy’s Telegram didn’t elaborate on what the measures may be.

It isn’t clear how Kyiv plans to get the corridor restarted just as tensions are escalating on both sides, and shippers and traders are wary. Senior officials from Turkey, which brokered the deal with the United Nations, said grain exports from Ukrainian ports are unlikely and that Turkey wouldn’t be involved in any shipment as Russia has threatened it may target the vessels.

The United States previously ruled out shipping escorts, while the United Nations has said it’s not able to offer grain ships security guarantees. Meanwhile, ship owners are wary of sending vessels, and a major insurance broker has suspended a program for grain exports from Ukraine.

Wheat is still poised for a weekly gain of 7%, as military drills in the Black Sea add to the risks disrupting grain trade from a vital producing region. Russia’s navy on Friday said it conducted a live-fire exercise in the waters. That comes at the end of a volatile week that saw the Kremlin terminate the crop export deal, and then attack Ukraine’s agricultural facilities. Both countries warned that ships headed to each other’s ports could be considered military targets.

On Friday, another Russian missile attack damaged “important infrastructure” in the Bilhorod-Dnistrovskyi area in Odesa, according to the regional administration. Russian missiles had hit a grain depot in Odesa overnight, causing a fire and damaging farm equipment, the administration said.

The rise in prices could again stoke food-commodity costs, which had moderated since the outbreak of the war last year.

“Markets have reacted violently this week from the geopolitics following Russia’s withdrawal from the Black Sea Grain Initiative, and continued weather concerns across much of the Northern Hemisphere,” ADM Agriculture said in a note. “The hype up in military action will also cause ship owners and insurers to be less confident in sending ships into what is now a ‘war zone’ environment.”

The flaring of Black Sea tensions adds to risks in global grain markets.

Heat is threatening corn crops in southern Europe. And drier conditions are ahead for corn and soy crops in the U.S. Midwest and Delta next week, Maxar said in a report. India added to the food supply shocks on Thursday, saying it will ban some rice exports.

The International Grains Council raised its global grain production estimate for the 2023-24 season, but trimmed prospects for wheat.