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Sunday, 24 July 2022

Russia, Ukraine reach landmark grain export agreement

Good news on the wheat front: Russia and Ukraine have signed a landmark agreement to resume grain exports through the Black Sea, in a move aimed at averting a global food crisis. Russian Defence Minister Sergei Shoigu and Ukrainian Infrastructure Minister Oleksandr Kubrakov inked the agreement in Istanbul on Thursday following weeks of negotiations brokered by the UN and Turkey. The pact will unblock 20 mns tons of grain stranded at Ukrainian ports, a development that UN Secretary-General Antonio Guterres hailed as a “beacon of hope” that will alleviate the hunger of mns of people facing record food prices due to the war in Ukraine.

What’s what: Under the agreement, Russia has pledged not to attack cargo ships carrying wheat or Ukrainian ports involved in the shipping of grain, according to a document obtained by the Associated Press. In return, Ukraine will allow the ships to be inspected to assuage Moscow’s concerns that they’re being used to smuggle weapons and troops into the country. A UN-led joint coordination center will be set up in Istanbul, allowing Turkish, Ukrainian and Russian officials to monitor shipping in the Black Sea. The initiative runs for 120 days and will be extended automatically.

Normal service to resume soon: Guterres is expecting grain shipments to restart “within the next two weeks,” the newswire reported, citing statements from UN deputy spokesman Farhan Haq. The agreement sees shipments unlocked from Ukrainian ports of Odesa, Chornomorsk and Pivdennyi. Ukraine would be looking for some assurances about the safe corridors, needing around 10 days to prepare its ports, a senior UN official said. The goal would be to export 5 mn tons of wheat every month to help unload Ukraine’s silos in time for this year’s grain harvest.

Ukraine has a lot to sell: Ukraine has around USD 10 bn worth of grain to sell, Ukrainian President Volodymyr Zelensky said in an address Friday, according to Reuters. “Approximately 20 mn tons of last year’s grain harvest will be exported. There will also be a chance to sell this year’s harvest … at the moment we have about USD 10 bn worth of grains available,” he said.

Shoukry hails Russia-Ukraine wheat pact: Foreign Ministry Sameh Shoukry welcomed the agreement during a phone-in on Ala Mas’ouleety last night. “It is a positive step that will ease the pressure on many countries that depend on imports from Ukraine and Russia, led by Egypt,” he told show host Ahmed Moussa (watch, runtime: 2:31).

Why this is important for us: Egypt, the world’s largest wheat importer, is among the countries most affected by the grain shortage triggered by the conflict. Egypt purchased more than 20% of its wheat imports from Ukraine prior to the war, leaving it scrambling to find new suppliers after Russia blockaded the nation’s ports.

It has been costing us a lot: Surging wheat prices added an extra EGP 15 bn to Egypt’s import bill in the final four months of the previous fiscal year, and Finance Minister Mohamed Maait said in June that wheat imports will cost an additional USD 3 bn this year if prices remained at their current levels.

Thankfully, wheat prices have fallen far from recent highs: US wheat futures have plunged more than 40% since peaking in mid-May as supply shortages have eased. The benchmark futures in Chicago fell as much as 6.6% after the agreement was announced on Thursday.

MEANWHILE- State grains buyer GASC has reportedly purchased an additional 120k tonnes of Russian and French wheat on Thursday, Reuters reported, citing traders. The purchase came a day after it booked 640k tonnes of wheat a day earlier. It has canceled a wheat tender on Tuesday due to high prices.

REMEMBER- GASC can now book the wheat directly from commodity traders. The authority typically purchases wheat via international tenders but in May the cabinet gave the go-ahead for the authority to buy directly from suppliers.

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