Global Grain Prices Soar as Black Sea Supply Disruptions, European Weather Extremes and Middle East Risks Create a ‘Triple Threat’

Grain prices rise sharply amid disruption to Russia-Ukraine supply chains
Grain harvests plunge across Europe as heat waves and drought take their toll
Disruptions to Middle Eastern energy and fertilizer supplies drive up costs for farmers

Global grain prices are rising sharply. The surge comes as prolonged hostilities between Russia and Ukraine have effectively paralyzed Black Sea grain supply chains, while heat waves and drought have caused production of major crops across Europe to contract. Disruptions to shipping through the Strait of Hormuz stemming from the Iran war have also increased production and transportation costs for farmers.

Global Grain Prices ‘Go Through the Roof’

According to Reuters on the 26th local time, wheat futures on the Chicago Board of Trade (CBOT) closed at $7.4825 per bushel that day, up 45 cents from the previous session and reaching the daily price limit. This marked their highest level in several years. Corn futures gained 13 cents to $5.365 per bushel after climbing as high as $5.3875 intraday, their highest level since the summer of 2023. Soybean futures also closed 28.25 cents higher at $12.66 per bushel.

The rise in grain prices is also evident across other indicators. According to the Chicago Mercantile Exchange (CME), KC hard red winter wheat futures posted a monthly return of 13.15% last month, while Chicago wheat gained 8.49%. The CME Group Agricultural Commodity Index, which covers grains and oilseeds, rose 2.36% over the same period, bringing its year-to-date gain to nearly 9.21%. The UN Food and Agriculture Organization’s Food Price Index stood at 131.1 last month, up 0.6% from the previous month and 1.0% from a year earlier. Within the index, the Cereal Price Index surged 3.4% month on month to 113.8 and was 6.9% higher than a year earlier.

Russia-Ukraine Exports Plummet

The paralysis of Black Sea supply chains caused by the Russia-Ukraine war has been cited as a major factor driving grain prices higher. Reuters recently reported that more than 97% of grain export facilities around the Black Sea and the Sea of Azov had ceased operations. Ukraine’s maritime export routes, in particular, have reportedly been almost completely cut off. Ukrainian Agriculture Minister Taras Vysotskyi said that not a single new vessel had entered the Port of Odesa between the 22nd of last month and the middle of this month. Ukraine is currently continuing to reroute grain exports by rail to Eastern European ports or via the Danube River. However, these alternatives have also been severely constrained by low water levels on the Danube following a prolonged drought, compounded by maintenance problems on Eastern European railways. The Ukrainian government forecasts that unless maritime exports resume, the recovery in shipments will be limited to no more than 50% of the required volume.

Russia faces a similar predicament. Major terminals at Novorossiysk, a key grain export hub in Russia—the world’s largest wheat exporter—have successively suspended operations. Following the Novorossiysk Grain Terminal (NZT) and the Novorossiysk Grain Plant (NKHP), KSK, Russia’s largest grain terminal, has also halted grain intake and exports, while the Taman terminal has ceased operations as well. Although cargoes could be diverted through ports on the Baltic Sea, the Caspian Sea and in the Russian Far East, doing so would lengthen transportation distances and increase costs. Amid these logistical disruptions, Russia’s wheat exports this month have contracted to approximately 1.8 million metric tons, the lowest monthly volume since 2010.

Table 1. State of the Black Sea Grain Supply Chain

European Harvests in Jeopardy Amid Extreme Weather

Extreme weather across Europe has also had a profound impact on the global food supply chain. European countries have been grappling with heat waves and drought for several months. According to the European Union’s Copernicus Climate Change Service (C3S), Europe’s average temperature in May was 13.87 degrees Celsius, approximately 0.60 degrees above the 1991–2020 average. The EU’s Joint Research Centre (JRC) also found at the time that high temperatures and dry spring conditions had begun to diminish yield prospects for winter crops across Western, Central and Eastern Europe. The heat wave subsequently spread across the continent in June, with France, Germany, Spain, Italy, the Benelux region and numerous other areas recording monthly average temperatures approximately 3–5 degrees above normal.

Europe’s grain production outlook has deteriorated rapidly as a result. COCERAL, a European grain industry association, lowered its forecast for this year’s grain output across the EU’s 27 member states and the United Kingdom from 295.5 million metric tons in June to 286.6 million metric tons last month. That would be approximately 23.4 million metric tons, or 7.5%, below last year’s output of 310 million metric tons. In its latest crop-monitoring report released on the 24th, the JRC said, “High temperatures and insufficient rainfall in France, southern Germany, northern and central Italy, Austria, Czechia, Slovakia, Hungary and western Romania impaired flowering and grain formation and reduced grain filling.” It consequently downgraded its yield forecasts for the EU’s principal summer crops to as much as 14% below the five-year average.

Damage Sustained by European Farmers

France has suffered the most conspicuous damage. Agreste, the statistical arm of the French Ministry of Agriculture, forecast on the 7th that the country would produce 9 million metric tons of grain corn this year. That would represent a 35% decline from last year and the smallest crop since comparable records began in 1980. Excluding seed corn, the production forecast falls further to 8.821 million metric tons. In Italy, disruptions to corn and rice production are intensifying, particularly across the northern agricultural heartland. Coldiretti, Italy’s largest farmers’ association, estimated on the 11th that heat waves, drought, hailstorms and wildfires had already inflicted more than $3.5 billion in damage on the agricultural sector this year. It added that damage in some areas had become so severe that harvesting corn itself could prove difficult, while rice yields could fall by as much as 40%.

Declining yields are also being recorded across the United Kingdom’s grain sector. According to a survey released by the UK Agriculture and Horticulture Development Board (AHDB) on the 14th, domestically grown wheat harvested as of the survey date—covering 85% of the country’s total wheat acreage—produced an average yield of only about 6.7 metric tons per hectare. That was 13% below the five-year average. The UK Energy and Climate Intelligence Unit (ECIU) also estimated that heat waves and drought could reduce the country’s grain and oilseed production by as much as 2.5 million metric tons relative to previous forecasts this year. A similar trend is emerging in Germany. According to a Reuters report from the Freising area of Bavaria on the 6th, local farmers began harvesting corn earlier than usual following a drought that lasted approximately two months. Local farmer Michael Felmaier said this year’s grain yields were the lowest since records began.

Middle East-Driven Cost Pressures

The Iran war has also dealt a severe blow to farmers worldwide, as vessel traffic through the Strait of Hormuz has effectively ground to a halt since the conflict began. According to the International Energy Agency (IEA), approximately 20 million barrels per day of crude oil and petroleum products passed through the Strait of Hormuz last year, accounting for roughly 25% of global seaborne oil trade. However, average transit volumes between March and May, following the outbreak of the war, plummeted to 2.7 million barrels per day. International oil prices also remained elevated, at one point surging well above $100 per barrel. This drove up both the operating costs of diesel-powered agricultural machinery, including tractors and combines, and the cost of transporting agricultural products, markedly increasing farmers’ production expenses.

Fertilizer supplies have also been directly disrupted. According to the IEA, the Middle East accounts for more than 25% of global ammonia trade and approximately 40% of global urea trade. This explains why global supply chains for ammonia, urea, sulfur and other fertilizer inputs tightened sharply following the closure of the Strait of Hormuz. Rising natural gas prices have simultaneously pushed up prices for nitrogen fertilizers, which use gas as a key feedstock. According to the World Bank, the global Fertilizer Price Index rose by more than 12% quarter on quarter in the first quarter of this year and reached its highest level since October 2022 in April. The index is projected to rise by nearly 30% for the year as a whole compared with the previous year.