Russia sanctions ‘not fully priced in’ amid Black Sea turmoil: Rabobank

4 Mar 2022 | Tim Worledge

The full scope of sanctions against the Russian government, businesses, financial and other entities may not yet be fully priced in and leaves the potential for further price rises, a report from Dutch bank Rabobank has warned in a report.

The specialist agriculture bank estimated that Ukraine – which was in the middle of a strong export programme – still holds export balances of around 7 million mt for corn, 6 million mt of wheat and around 3 million mt of sunflower oil, all of which will now struggle to be exported.

However, while current corn and wheat prices probably allow for the impact of lost export capacity, the extent to which Russian sanctions, or potential damage to planting in the weeks ahead, has currently been factored in to global prices.

“A further escalation and recent heavy sanctions on Russia, which will disrupt Russian exports of grains, energy and fertilisers, is only to a limited extent price in and could still drive prices up,” Stefan Vogel, the bank’s General Manager of Research said.

The bank noted that a direct ban of Russian grains is unlikely, on humanitarian grounds, but said “indirect disruptions are occurring.”

It remained too soon to call the impact on 2022 production as well, with wheat, rapeseed and over half of the barley crop sown, and corn and sunflower planting usually starting from April.

“The length of the war and the extent of the disruptions will be crucial to monitor,” the report said.

According to Rabobank calculations, Ukraine typically exports 25 million mt of wheat - around 12% of global trade - and 35 million mt of corn, or 16% of world trade.

Alongside that, the country exports 3 million mt of rapeseed and 7 million mt of sunoil and 18% of barley.

Appraising the likely impact of sanctions, and despite grains expected to be spared from direct penalties, Rabobank highlighted that surging costs of inputs and Russia’s suspension from the international payment system known as Swift would also hurt.

“Swift sanctions recently introduced by the EU and the US will cut deeply into the ability of Russia to receive international payments for its exports and could significantly limit the capability to pay for all exported goods, including food, fertiliser and energy,” Rabobank said.

With Russia also exporting 13% of the world’s crude oil and 9% of natural gas, any disruption is also likely to drive prices for key inputs like urea and diesel higher.