September 26, 2022

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The Russian conflict chokes off supplies from the world’s breadbasket and puts pressure on the price of corn and wheat

3 min read

With most of Europe’s airspace closed to Russia, palladium producers face major disruption. The country presided over by Putin is the main producer of this precious metal essential in vehicle catalysts, and the most common way of transporting it is via passenger aircraft.

A situation that leaves companies like MMC Norilsk Nickel PJSC studying alternatives to supply their customers. So far this year, the drumbeat of war and potential shocks to Russian exports have pushed the price of palladium up more than 38%. A concern that is aggravated by a decline in reserves of the metal on the surface that has been taking place for years, since its demand is well above its supply.

 “Over time, ways will emerge to get around the hurdles, even if that means going through more difficult routes, or shipping to China or other consuming countries.”

Obstacles that limit the air and sea route. About a quarter of global grain exports are traded through the Black Sea and as the war intensifies, the risks of logistical turmoil are rising; and the ships that transport the goods through these waters fear being attacked or bombed, as has already happened with two ships near Odessa.

Thus, while some shipments of wheat are still leaving Russia, Ukrainian ports are closed, leaving its main buyers actively looking for other countries to sell it to them. However, the prices of its farmers in the last decade are not comparable to those of other countries such as Canada or the United States. Some disruptions that come precisely at a time when crop prices have already increased considerably due to weather conditions and imbalances in the global supply chain.

Among the big buyers, they expect India to reach record export levels of the raw material, as well as that France, Germany or the US can also contribute part of the production lost due to the Russian invasion of Ukraine.

Russia is the world’s largest wheat exporter and Ukraine the fourth, making this area of ​​Eastern Europe the “breadbasket of the world.” In figures: of the 207 million tons traded, around 17% come from Russia, and around 12% from Ukraine. “Wheat and corn are the two most exposed agricultural commodities in the markets to any kind of escalation in tensions between Russia and Ukraine.” In fact, corn futures are up nearly 5% today, putting the price per bushel at the highest since May. In addition, the regions of eastern Ukraine – where the Russian invasion began – are the ones that produce the largest amount of this raw material. Grain cargo at its Ukrainian ports is also being affected, and countries like Egypt will not receive cargo from the Black Sea. In addition, insurers are not offering coverage to the ships that sail through it, or are demanding huge premiums in return, which in turn greatly increases the risks (and costs). At least 630,000 tons of grain have been lost amid the attacks, AgFlow’s executive director stresses. Cargo that was on its way to countries such as Algeria, Yemen and Egypt, and that also transported corn to others such as China, South Korea and Spain. 

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