After oil and gas, Russia weighs on wheat supplies (and could empty our plates)

The wheat looks bad. Since April, cereal prices have been increasing. Against all expectations, notes Zone Bourse, they rose by 30% in a few weeks.

For consumers who continue to suffer the economic hazards of the war in Ukraine, the “breadbasket” of Europe before the conflict, the burden is heavy. The fault is a contraction in production, very unwelcome in these times of crisis: last week, the International Grains Council (ICC) also recorded an overall decline of 3 million tonnes compared to the previous month. Although it is largely attributed to bad weather, observers fear Russia’s influence on the wheat market, while Moscow has already demonstrated its desire to play on the West’s energy supply. And this strategy begins within the Russian borders.

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Four Russian companies

Thus, notes Bloomberg, Russia is sparing no effort to further control its crucial grain industry. The authorities have cleaned up: the main Western traders, including Cargill Inc., Viterra and Louis Dreyfus Co., have withdrawn to make way for Russian companies close to power. From now on, a handful of firms acquired from the regime share the Russian wheat market, explains Bloomberg: four companies are responsible for three-quarters of grain exports from Russian terminals in the Black Sea (the same quartet only controlled 45 % six years ago.

This state control of economic affairs concerns sellers and countries that Source wheat from Russia, especially since “Russia has never weighed as much as it does today” in this market, noted Sébastien Blis, associate researcher at the Institute of International and Strategic Relations (Iris) and director of the Demeter club, in March, for Terre-net. The Federation exported 50 million tonnes of the precious cereal this year, or 25% of the world market. “Ukraine exported less wheat and other countries did not export more,” analyzes Sébastien Blis.

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“Which means that mechanically, by increasing its volumes and seeing that the Ukrainian competitor was less present (…) there was a “Russification of the world market”.

So far, there is no indication that Russia is significantly disrupting its own supplies, as it did by cutting gas deliveries to Europe in 2022, but its influence is being scrutinized.

Dangerous lack of visibility

As the Russian market has withdrawn into its own players, traders who continue to buy cargoes in Russian ports are also concerned about the lack of transparency on volumes and harvest conditions. Due to a lack of personnel on Moscow’s lands, the US Department of Agriculture, which publishes global harvest forecasts, is relying more on satellite images, which may not detect damage. However, the weather in Europe and Russia has been very bad in recent months, varying from drought to frost. The International Grains Council now projects that Russian wheat production will decline by around 6% this year.

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Who says scarcity of the resource, also says impact on prices, recalls for Zone Bourse Dennis Voznesenski, analyst at the Commonwealth Bank: “Russia, the Source of the world’s cheapest wheat, is facing production deficits and Russian prices are rising.”

The only glimmer of hope: the improved outlook for American harvests, which could limit the damage. Europe, almost weaned off Russian natural gas (excluding LNG), is already counting on American LNG for heating. She may well have to rely even more on Washington to fill her plates.