Global wheat prices have reached a three-year high, driven by intensifying attacks in the Black Sea region and severe heatwaves. This surge revives risks of food inflation, which has also been exacerbated by conflict in Iran. Chicago wheat futures have climbed more than 17% since early July, with prices for the December contract of soft red winter wheat (SRW) on the Chicago Board of Trade (CBOT) trading between $6.99 and $7.02 per bushel, surpassing the $6.80 level reached last week. Prices in Paris are also heading for a fourth weekly gain.
Traders are attributing this rally to a "Black Sea risk premium," reflecting the significant drop in wheat exports as Russia and Ukraine effectively blockade each other's access to the sea. Russia, the world's largest wheat exporter, and Ukraine, the fifth largest, collectively account for approximately 30% of global wheat supply. Disruptions at ports on the Sea of Azov and the Black Sea are projected by Oxford Economics to reduce global grain supply by 86 million tons this year, representing about 17% of global grain exports. Specifically, Russian grain exports are expected to fall by 52 million tons and Ukrainian exports by 34 million tons.
Andrei Sizov, managing director of SovEcon, highlighted the severity of the situation, stating it is "worse for the wheat market than a Strait of Hormuz blockade would be for oil." The conflict has seen both sides escalate attacks on Black Sea ports and merchant ships, making food security a front-line issue. This comes as Asian mills have already booked Black Sea wheat for July to September. The switch to alternative suppliers will further boost prices, with Australian wheat quoted at $315 to $320 per ton to Asia. Oxford Economics projects global food prices will rise 11.8% this year and an additional 4.8% next year due to the latest escalation. Notably, more than 90% of Russia's grain export capacity in the Azov-Black Sea basin has been taken offline following Ukrainian attacks, disrupting a major source of foreign-currency revenue for Russia, which typically brings in around $15 billion annually from grain exports.
