New attacks by Russia on the Ukrainian Danube ports in the early hours have particularly shaken the wheat market. This happens just at a time when the war premium in the wheat market had been reduced considerably. With the volatility in the grain market, food security is again high on the agenda in several countries. And in that area there are also opportunities in Africa - which has been hit hard by the higher grain prices.
The September wheat contract on the Matif closed yesterday €2,50 lower at €227,75 per tonne. On the CBoT, wheat prices dropped 2,8% to $5.98½ per bushel. Corn and soy also closed in the red. Corn closed 2,5% lower at $4.64 per bushel and soy lost 2,2% to $13.23¼ per bushel.
The risk premium in the wheat market for the war in Ukraine was further reduced yesterday (Tuesday), analysts say. But as has happened before, the battle seems to be flaring up again. Last night, Russia carried out two drone attacks on Ukraine's Danube ports. "Russian terrorists attacked the Odessa region twice last night with drones. The main target is the port and grain infrastructure in the south of the region," Odesse Governor Oleh Kiper wrote on Telegram. Photos circulating show that stores containing grain and sunflower seeds have been hit. Damage to machines and installations is also reported.
Free passage
Despite the Russian attacks, Ukraine is continuing with the plan for (temporary) free passage of merchant ships that have been stuck in Ukrainian ports since the start of the war. "The first merchant ship uses the safe corridor for departure from Greater Odessa," the Ukrainian Deputy Prime Minister wrote on Facebook. This would be the Joseph Schulte, a ship sailing under the flag of Hong Kong that is en route with 30.000 tons of cargo in more than 2.000 containers. The ship had been moored in Ukraine since February 23, 2022 (1 day before the Russian invasion).
For agricultural exports, the Ukrainian Ministry of Agriculture focuses on exports outside the Black Sea. If all plans are successful, 48 million tons of grain can be exported per year via the alternative routes, according to the ministry. This is not yet reflected in corn exports. From July 1 to August 14, Ukraine exported 1,5 million tons of corn, which is 16% less than in the same period last year.
Opportunities in Africa
The war in Ukraine and the consequences it has on grain prices mainly affect the poorer countries in Africa, according to several experts. However, there are opportunities in Sub-Saharan East Africa to increase domestic grain production, as shown in a recently published report by Rabobank on this region. In the period 2017-2021, Russia, Ukraine and the EU accounted for around two-thirds of wheat imported into East Africa. For rice (the other national food), the region borrows from India and Pakistan. According to Rabobank, grain imports will continue to grow in the period up to 2035. This offers opportunities for exporters in the EU, the Danube region and the Black Sea region because they can ship grain to East Africa relatively cheaply due to their geographical location.
However, own production can also be increased. Good and effective agricultural practices such as mechanization, irrigation, crop rotation and better access to means of production are essential. Rabobank also attaches importance to economies of scale. Small family businesses can grow into innovative companies that need to scale up, with the aim of sound economic chains. As a critic, you might ask: Where have we heard that before? The fact that there is a lot of untapped agricultural potential in East Africa is not a new insight. For example, the IMF showed in an older report that in the period 1980-2017, maize production in Zimbabwe (perhaps also known to older readers as Rhodesia 'the breadbasket of Africa') halved, partly due to the land reforms of then-president Mugabe.