Wheat prices rise as Russia’s bombs fall, lifting the cost of your daily bread

Wheat prices rise as Russia’s bombs fall, lifting the cost of your daily bread

Global wheat prices have risen sharply since a UN-brokered deal to ship grain out of Ukraine ended last month, with the effects starting to be felt by some of the world’s poorest nations.

Key points:

  • Wheat prices rose sharply after a deal to safely export Ukrainian grain collapsed
  • Prices were already high, since Russia’s 2022 invasion of the ‘bread bowl of Europe’
  • Food costs have been one of the big drivers of inflation in Australia

The ongoing conflict in Ukraine — known as the ‘bread bowl of Europe’ — has fuelled fears about global food security, as well as inflation in Australia.

The Black Sea Grain Initiative, or ‘grain deal’, was an agreement for the safe passage of ships out of Ukraine ports on the Black Sea.

But the deal ended on July 17, when Russia chose not to extend the agreement signed in July 2022.

Ports have also been attacked during the conflict, adding to international fears.

Global wheat prices have now rocketed, with Rabobank senior agricultural analyst Dennis Voznesenski telling ABC the price was as much as 20 per cent higher than it was on July 17.

« Now we’re closer to around 10 per cent (higher) versus the 17th of July, » he said.

Dennis Voznesenski

« (Australia) has been critical over the last couple of years… because the rest of the world has had to look elsewhere apart from the Black Sea for wheat supplies, » says Dennis Voznesenski of Rabobank.(ABC News: John Gunn)

There are a lot of different impacts of that price rise, including:

  • More competition for a scarcer resource
  • Poorer countries having to spend more on food
  • Likely higher prices flowing to Australian farmers

And there are no fast solutions to the problem according to Mr Voznesenski.

« I think this is going to sustain prices at an elevated level, » he said.

« The alternative to sending grain through the (Black Sea ports) is either to send it by road, rail, or a very large avenue was the Danube River system in the south-west of Ukraine. »

But bombings there have damaged export facilities there too.

« Will the ports be rebuilt? Yes. In the Danube River system ports will have to be rebuilt because there’s literally no other large avenues to get grain out of Ukraine. »

International community now looking elsewhere for wheat and grain

For every ten cups of flour scooped out in kitchens and bakeries around the world, Australia provides about one, Russia and Ukraine about three.

But war in Ukraine means the international community is looking to countries like Australia to try and fill the void.

« (Australia) has been critical over the last couple of years … because the rest of the world has had to look elsewhere apart from the Black Sea for wheat supplies, » Mr Voznesenski said.

More than 14,000 kilometres from the conflict, Ryan Milgate is looking over his wheat crop in Minyip in the Wimmera region in the north-west of Victoria.

Ryan Milgate

Minyip grain farmer Ryan Milgate has planted about 8,000 hectares of wheat this year – a land mass similar to 4,500 times the surface of the Melbourne Cricket Ground (MCG).(ABC News: Sean Warren)

His wheat will be in high demand when it is harvested later in the year, but Mr Milgate said it is awful this is partly the result of war.

« It’s terrible to see people on the other side of the world and what’s happening there, » he said.

« Markets are made of supply and demand, and that’s influenced by many factors.

« It could be drought, could be conflict, could be politics. Unfortunately, that’s a stark reality of the world we’re in. »

Depending on their business — and cash flow — some farmers sell their wheat before it’s harvested.

They’ll get the price now, or like Mr Milgate, a different price when most Australian wheat is cut anywhere from October to December, depending on conditions. 

« It’s pretty sad to see what’s going on around the world, Ukraine and Russia, » he said.

« But it’s a supply-demand market, it comes in different ways. »

Growing barley, canola and lentils as well as wheat, Mr Milgate is like many other farmers who grow a variety of crops.

Some of that is to improve the soil composition and smooth out the peak seasons of planting and harvesting. 

Another is to deal with the two key factors in farming far beyond the control of one man: weather and the price paid for different commodities.

« We’ve only really got control of what we’re looking at here, » he said, laughing and sweeping his arm to point towards the lush young green wheat.

« But I guess we just control the ‘controllables’ and the rest comes along that. 

« There’s methods of minimising and maximising our returns and risk. But we really only concentrate on what we can influence. »

Minyip wheat

This wheat, on the farm of Ryan Milgate of Minyip in north-west of Victoria, is about 3 to 4 months from being ready for harvesting.(ABC News: Sean Warren)

Food prices rise as inflation sets in

Household budgets have been smashed in the past year as soaring costs — what we call inflation — have reduced what people can get for their money.

The latest consumer price index (CPI) figures show annual inflation slowing to 6 per cent, down from 7.8 per cent in the year to December. 

But food has gone up by 7.5 per cent annually to the June quarter, and a peak of 9.2 per cent in December.

The price of bread and cereal products rose 11.6 per cent in the year to June, and that’s before the collapse of the Black Sea grain deal and Russian bombings of Ukrainian ports. 

Erin Burns works in commodity risk management for Mauri, a division of one of Australian’s biggest food manufacturers, George Weston Foods.

She explained that Australian wheat is exported, but much of it is used by Australian consumers and as animal feed. 

Wheat crop

A wheat crop in Western Australia.(ABC Rural: Jessica Hayes)

« The price will rise to stop exports, » she told the ABC’s Clint Jasper.

« The domestic market effectively has to pay to stop the wheat being exported. And that’s a function of just any sort of supply and demand market.

« You cannot ignore the fact that Russia invaded Ukraine 18 months ago, taking out potentially a third of global wheat exports, corn exports on top of that, canola exports, sunflower seeds … a whole basket of commodities.

« That supply shock to the market? Prices are definitely going to be higher. »

But that doesn’t necessarily mean a jump in the price per loaf of bread.

« You have to factor in things like labour costs, energy costs, » Mr Voznesenski said.

« And at the end, if we see say a 10 per cent increase in the global wheat price, will it cause a 10 per cent increase in bread prices? Probably not. »

Issues flow to importers

A potentially greater issue is the impact on mass importers, particularly countries that buy wheat and grains to feed their populations. 

With the price rising, Sumit Gupta of broker McDonald Pelz Global Commodities is worried about what that takes money away from.

« If you spend more money on food, you spend less money on education and health, the overall living standard goes down, » he said.

With global markets linked — competing for grain — poorer countries are at a disadvantage. 

« It’s a very, very tough situation for many countries at the moment. Beyond their control, » Mr Gupta said.

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