Once again, the world is trying to understand what an end to Ukraine grain shipments out of the Black Sea will mean for the international grain market. On July 17, Russia terminated the Black Sea grain deal that had kept Ukraine’s corn, wheat, sunoil, and other critical agricultural exports flowing. Ukraine farmers do have some alternative shipping options but they are more expensive and can handle only a fraction of the volume. Commodity prices have been climbing and there is renewed fear about food shortages and inflation. Below are more details:
How Much Grain Has Ukraine Been Shipping?
The Black Sea Grain Initiative, negotiated in July 2022 as a way of preventing a global food crisis, allows commercial food and fertilizer shipments from three of Ukraine’s three ports – Odesa, Chornomorsk, and Pivdennyi. Ukraine says the Black Sea deal facilitated the export of nearly 33 million metric tons of grain and oilseeds from its ports, of its more than 48 MMT total grain and oilseed exports in the 2022-23 season. Remarkably, Ukraine managed to maintain its positions as the third-largest global corn exporter and sixth largest wheat exporter. In 2022-23, Ukraine accounted for about 15% of the total global corn trade.
Who is Importing Ukraine Grain?
China is by far the biggest importer of Ukraine ag products, accounting for almost 25% of the 32.9 mmt of goods shipped under the deal. Spain and Turkey have also been big buyers. UK officials say about 61% of shipments under the deal have gone to low- and middle- income countries. As of July 2023, about 80% of the wheat purchased for the World Food Program flowed through Ukraine’s Black Sea ports, with some 725,000 metric tons sent to the world’s most food-insecure countries. Russia has criticized the deal over the small portion of grain that has gone to the very poorest countries but the reality is that even if a larger share is going to wealthier countries, Ukraine’s contribution has still increased global supplies and helped depress prices. The United Nations estimates that the deal helped reduce food prices by around -23% since it was initiated in July of 2022.
What are the Alternatives?
At first, some speculated that ships may still be able to transit the Black Sea without Russia’s cooperation but Putin has made that virtually impossible now. Russian recently warned that it will deem any ships attempting to go to Ukraine ports to be potentially carrying weapons, therefore subject to Russian military attacks. What’s more, the Kremlins says it will consider the countries that ships are flagged under as “parties to the war on the Ukrainian side.” Ukraine over the last year has been able to increase grain shipments via Europe’s Danube river to around 2 MMT, and said there is the potential to double that amount. Still, that is just 4 MMT, a far cry from the almost 33 MMT that flowed from its ports this past season. Additionally, the cost to transport grain via the Danube and other modes adds increased logistical costs, meaning Ukraine farmers will likely have to sell their ag products at a discounted rate. The flow of Ukraine ag exports also face roadblocks from farmers in five European countries that blame Ukraine imports for declining prices, resulting in local restrictions and bans on Ukraine grain imports. They do allow for Ukraine grain to move through their borders to other countries, however.
Could Russia Change It’s Mind?
Russian President Vladimir Putin has no doubt used the Black Sea Grain deal as a political tool and has continued pressing for concessions from the West in order to resume the initiative. However, many of the concessions Putin is demanding would severely dilute the sanctions implemented by the West in an effort to stymie Russia’s war. Even if Russia were to resume the deal, the Russian military has also been carrying out air strikes on Ukraine’s port infrastructure and grain storage facilities, meaning the ports may not be functional and the bombed commodities are likely unsalvageable.
How Much Grain is the World Losing?
To understand the full impact to global food supplies, you really must compare the loss of Ukraine grain since the start of the war. Pre-invasion, Ukraine corn production was averaging around 35 MMT and exports were 25 to 30 MMT. The USDA most recently pegged 2023/24 production at 25 MMT and exports at just 19.5 MMT. Wheat production before the war averaged 25 to 30 MMT per season, with exports of 15 to 20 MMT. The estimates for 2023/24 wheat are for 17.5 MMT in production and 10.5 MMT in exports. Most analysts believe estimates for the 2023/24 season will be severely trimmed though it’s unclear by how much. (Sources: USDA, DTN, Reuters Politico)