Collapse of Black Sea Grain Initiative Rattles Market: Impact on Ukrainian Grain Exports
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Collapse of grain deal rattles the market
Grain markets have rallied this week following Russia’s refusal to extend the Black Sea Grain Initiative. The ratcheting up in tensions between Ukraine and Russia means that risks are skewed to the upside, particularly when it comes to the wheat market. However, for now, we do not see the market re-testing the 2022 highs.
How important is the Black Sea Grain Initiative?
The Black Sea Grain Initiative came to fruition in July last year after the UN, Turkey, Ukraine and Russia agreed on the safe passage of vessels shipping agricultural commodities from three Ukrainian Black Sea ports: Odesa, Chernomorsk and Yuzhny. The deal was originally set for 120 days with the intention for it to be extended by a similar duration. And while this initially happened, since March, Russia has only been prepared to extend the deal for periods of 60 days, which has led to elevated uncertainty across grain markets. In recent months and in the lead-up to Russia pulling out of the deal, flows from Ukrainian Black Sea ports slowed significantly with Ukraine suggesting that Russia was blocking vessel inspections.
However, despite the many challenges and uncertainties with the deal, it has proved beneficial for grain flows and therefore for consumers. Ukraine has managed to ship almost 33m tonnes of grain under the deal since August last year. This has seen CBOT wheat prices trading more than 20% lower between the period the deal was announced and Russia suspending its participation.
Of the almost 33m tonnes shipped under the deal, 16.9m tonnes was corn, whilst 8.9m tonnes was wheat. The remainder of flows were mostly sunflower oil/meal, barley and rapeseed.
Ukranian grain and oilseed exports under the Black Sea Grain Initiative (m tonnes)
These are not the only export volumes from Ukraine. According to Ukraine’s agricultural ministry, the country managed to ship a total of 29.5m tonnes of corn and 16.8m tonnes of wheat in 2022/23. This is due to the fact that Ukraine has also increased exports through other routes, via river, road and rail.
However, there are obviously challenges in doing this. Firstly, transportation costs will be higher than shipping from the Black Sea in dry bulk vessels, secondly, there will be capacity constraints as well as other logistical issues moving this grain westwards. And finally, there has been pushback from neighbouring EU countries over the influx of Ukrainian grains into these markets, which has weighed on domestic prices.
Poland, Hungary, Slovakia, Bulgaria and Romania have restricted grain imports from Ukraine since the spring, although transit is allowed. Recently, these countries have pressured the EU to extend restrictions which expire on 15 September, given the expectation that more grains will flow westwards now.
2022/23 total Ukranian grain exports (m tonnes)
