Many of the global prices for food, fuel and fertilizer that spiked when Russia invaded Ukraine have returned to their prewar levels, defying the most dire forecasts even as policymakers warn of the continued risk of famine and financial crisis in the developing world.
Russia's Feb. 24 attack on Ukraine sent a shock wave through commodity markets. Since then, however, fears that the war would cut off all exports through the Black Sea have proved unfounded.
Russian grain cargoes for months have sailed from the docks in Novorossiysk to customers in Africa and the Middle East. And limited grain shipments from the Ukrainian port of Odessa resumed Aug. 1 under a deal brokered by the United Nations.
Pressure on commodity markets also eased after Wall Street speculators began selling their holdings in response to the Federal Reserve's interest-rate increases, which made bets on rising commodity prices less certain.
Wheat is now less expensive than when the war began. Brent crude oil, the global benchmark, hovers around its mid-February level of $97 per barrel. And the price of urea fertilizer, which almost doubled in the war's first weeks, is back to its prewar level.
Yet, markets could again reverse course, and they are likely to remain volatile into next year, analysts have said.
"The worst didn't happen. . . . But there's a false sense of security in the markets right now," said Sanjeev Krishnan, the chief investment officer at S2G Ventures, an investment firm in Chicago specializing in food and agriculture. "This fall could have a lot more volatility."
Averting a deeper global crisis depends on the interaction between government policies in scores of countries, the climate, an unpredictable conflict in Europe and global diplomacy.
With Russia already having lobbed one missile at grain terminals in Odessa, there are questions about whether the deal to resume Ukrainian shipments will hold. Extreme weather events, including a multiyear drought in the Horn of Africa, threaten harvests on multiple continents. And a potential embargo on Russian energy shipments to European customers later this year could aggravate rising natural gas costs that already are pushing some fertilizer prices up.
Still, the current situation is an improvement. Earlier this year, the war between Russia and Ukraine, neighboring countries that together account for more than one-quarter of all globally traded wheat, caused grain prices to soar by 63% in less than two weeks. At the same time, prices for one type of nitrogen-based fertilizer almost doubled, and oil shot up to almost $128 per barrel.
Subsequent price declines have delivered little relief to countries that rely on global markets for key commodities.
One-third of the 153 countries that the World Food Program tracks recorded annual food inflation of at least 15% for the three months that ended July 31, according to Friederike Greb, an economist with the Rome-based United Nations offshoot.
In Lebanon, food prices rocketed by 332%, while Iranian food bills jumped by 87% and Turkish grocery costs rose by 95%.
"Lower prices are definitely good news for global food security," Greb said. "But we don't have any reason to be less worried, given what we see happening on the ground."
Changes in global commodity prices can take 10 to 12 months to filter down to local markets, according to the International Monetary Fund.
When they do, the declines are often overwhelmed by the impact of falling currency values in importing nations. The Fed's multiple interest rate increases this year have lifted the dollar against most other currencies.
The currencies of Zimbabwe, South Sudan, Turkey, Sri Lanka, Laos and Malawi have lost at least 25% of their value against the greenback. That is, effectively, a price increase for local companies or governments purchasing global commodities, which are priced in U.S. dollars.
"We're still in a crisis of mega proportions," Greb said.
A total of 345 million people in 82 countries are in danger of dying because of insufficient food, more than twice as many as before the pandemic, according to World Food Program. Despite the recent easing of prices in the commodity markets, food, fuel and fertilizer remain significantly more expensive than a year ago.
"It's too early to say that we're past the worst," said Ngozi Okonjo-Iweala, the director general of the World Trade Organization.
The rise in prices earlier this year was amplified by speculators' financial bets. In February, before the war started, money managers were betting in futures markets that Chicago Board of Trade wheat prices would decline, according to data from the Commodity Futures Trading Corporation.
But by early March, the market herd had shifted to a massive bet on rising prices. The size of that bet peaked in mid-May shortly after the Fed's second rate increase in three months, which was designed to bring inflation down from 8.5% to its target level of 2%.
"When the Fed says we're going back to 2%, you need to get out" of the commodity markets, said economist Dan Basse of AgResource in Chicago.
Each commodity market is also shaped by distinct factors. Oil prices have experienced their sharpest decline since early June, thanks to fears of a global recession that would cut demand for petroleum.
The outlook for wheat prices became especially cloudy in the first months of the war after Russia stopped its routine reporting of export data to the United Nations' Comtrade database, according to Joseph Glauber, a senior research fellow with the International Food Policy Research Institute who has approximated the missing export figures by analyzing purchase reports from Moscow's customers.
"They're showing about the same level of exports from Russia this year as last year," he said. "Russian trade is on track."
Those higher-than-anticipated Russian exports are one reason that wheat prices are down. The deal reached last month by Russian, Ukrainian and Turkish diplomats, which facilitated shipments of some of the 20 million tons of grain trapped in Ukraine by the war, is another reason.
This month, 14 vessels carrying corn, sunflower oil and soybeans have sailed from Ukrainian ports, according to a U.N. database. The ships stop in Turkey, where inspectors check to make sure no weapons are hidden among the foodstuffs, before proceeding to destinations such as Lebanon, China, Italy and South Korea.
There is a balancing act involved in increasing the flow of Ukrainian grain to the developing world, where it is desperately needed to stave off hunger. If the grain that has been trapped in Ukraine by the war surges onto global markets, wheat prices could fall just as Ukrainian farmers, who already have paid higher fertilizer and seed costs, try to recover their investment, said Máximo Torero, the chief economist for the U.N. Food and Agriculture Organization.
U.N. food officials are in discussions with the International Monetary Fund and others about potential financing to help, he said.
A related agreement should enable more exports of Russian ammonia fertilizer via a pipeline to the Ukrainian port of Pivdenny, which has been closed since the war's early days, said Chris Lawson, the head fertilizer analyst for the CRU Group.
Prices for urea, a widely-used nitrogen fertilizer, fell by one-half from their April peak of $940 per ton. But as natural gas - the main fuel used to produce such crop nutrients - has grown more expensive, prices since mid-June have ticked back up somewhat.
Prices for potash, another fertilizer, dipped after Belarus, a Russian ally and major global producer, resumed limited shipments, Lawson said. About 100,000 tons of Belarusian potash are reaching global markets each month, well below the prewar norm of roughly 1 million tons, but more than analysts expected.
Farmers also responded to the initial postwar price increase by reducing their use of both potash and phosphate, he said.
"Things are still really, really tight. But it hasn't been as bad as the Armageddon that people expected," Lawson said.
That could change.
In southeastern Africa, farmers in Malawi are having trouble obtaining enough fertilizer for the next planting season, and the supplies they obtain cost more than twice what they did in 2020, according to Sheila Keino, the Malawi country director for the nonprofit African Fertilizer and Agribusiness Partnership.
A 25% devaluation of the kwacha, the local currency, has made imports more expensive, straining the household budgets of the smallholder farmers who make up the bulk of the country's workforce.
"It's going to be difficult," Keino said. "Everything has gone up, but nobody has more money in their pocket. So we'll see a lessening of the utilization of fertilizer."
If farmers in the developing world cannot afford to use adequate amounts of fertilizer, next year’s harvests could be depressed, extending the food crisis into a second year.