Russia is threatening to pull the plug on the Black Sea Grain Initiative on May 18, blocking Ukrainian seaborne exports of corn and wheat. The European Union has banned Ukrainian agriculture exports to neighboring Romania, Bulgaria, Poland, Hungary and Slovakia until June 5, with an extension through year-end possible, due to local pricing pressures. The Tolyatti-Odessa pipeline, a key conduit for Russian exports of ammonia — a vital fertilizer feedstock — remains offline.
CNBC recently warned that “the basic food security of tens of millions across the globe is hanging by a thread.” The United Nations stressed that the Black Sea Grain Initiative is “critical” and helps “stave off famine.”
Prices of agricultural products and fertilizers spiked after Russia’s invasion of Ukraine. Is the world headed for a new food-inflation crisis?
Not this time, according to commodity price-reporting agency Argus. Global trade flows have evolved over the past 14 months, adjusting for the war risk. Ocean shipping has come to the rescue, plying new routes: from bulkers carrying wheat, corn, and fertilizers to liquefied petroleum gas (LPG) carriers loaded with ammonia to product tankers transporting sunflower oil.
“Markets find a way,” said Mike Nash, senior editor of fertilizer markets at Argus, during a presentation on Thursday. Geopolitical impacts have already “largely played out,” he said.
New threats not lifting commodity prices
Ukraine’s role in global markets has eroded even as its exports moved overland to neighboring countries and left by ship though the Black Sea corridor. Consequently, a loss of Ukrainian exports now would have much less impact on buyers than it did when the war broke out.
The proof is in the prices. Not only are agricultural commodity prices down sharply from the post-war peak, they’re not rising as new threats to Ukrainian exports emerge.
According to Jade Delafraye, Argus’ global editorial manager for agriculture, “The situation in Ukraine has had a large impact on the grains, oilseeds and veg-oil markets over the last year or so. But at the moment, the share of Ukraine in the supply of those markets has been greatly reduced. And these markets are well supplied.
“Therefore, the concerns and uncertainties about whether Ukraine will be able to continue exporting are not currently sufficient to lift prices.”
A meeting of Black Sea corridor technical staff was held Friday in Istanbul to discuss the extension of the deal. No agreement was reached.
The number of Black Sea transits from Ukraine has fallen even before a decision on extending the corridor agreement. Only six vessels left Ukrainian ports in the most recent week. “This is down sharply from where we were a few months ago, with a peak of 55 ships [in a week] back in September,” noted Delafraye.
Russian wheat exports hitting record levels
When the ports were closed in the early days of the war, Ukraine exported its wheat, corn and barley by land through Romania, Hungary, Slovakia and Poland. Starting last August, it began exporting grains — primarily corn — via the Black Sea corridor.
The U.S. Department of Agriculture currently projects global wheat exports will total 212.7 tons in the 2022-23 marketing year (which ends June 30), up 5% year on year. Russia is the largest exporter, predicted to ship 45 million tons — a 36% year-on-year surge.
Worst-case scenario for Ukrainian exports
Delafraye addressed a worst-case scenario in which Ukraine seaborne exports go to zero. Even in that case, “there are no real concerns … on whether the global market could cope without Ukrainian volumes,” she said.
For the current marketing year, there are “ample [wheat] volumes left to be exported” from Russia, Romania, Bulgaria, Canada and Australia. For the 2023-24 marketing year, strong ending stocks should allow the EU, Russia and Australia to ramp up exports to cover the wheat shortfall, she added.
Corn prices fell from their post-invasion peak as well, “although not as much as wheat, despite the fact that the majority of the Ukrainian exports through the corridor and by land have been corn exports,” Delafraye said.