Black Sea grain corridor extended, but uncertainty remains

Grain Brokers Australia, March 21, 2023

Ships carrying Black Sea grain can pass through the Bosporus at least until May 18 following the latest agreement. Photo: Shutterstock

TURKIYE’S President Recep Tayyip Erdoğan announced on Saturday that the deal allowing the export of Ukrainian grain from the ports of Odesa, Chornomorsk and Yuzhny/Pivdennyi via a safe Black Sea shipping lane had been renewed. But the length of the extension period was not disclosed and is being disputed by Ukraine and Russia.

Global grain markets have been on tenterhooks for the past month, waiting to see if the corridor would be extended beyond Saturday.  As the March 18 expiry date loomed, Russia was adamant that it was only ready to continue the deal until May 18.

Chance for more than 60 days

The United Nations and Turkiye favour a 120-day deal as it increases supply certainty for global consumers. Turkiye’s foreign minister, Mevlut Cavusoglu, said on Saturday his country would continue efforts to extend the deal beyond two months, suggesting that may be where the line has been drawn for now.

Russia said it had agreed to a 60-day extension, while Ukraine’s infrastructure minister, Oleksandr Kubrakov, said the deal had been extended for 120 days. Kubrakov quickly jumped on Twitter on Saturday, announcing to the world that the agreement would continue for another 120-day period, and thanked all parties involved in the negotiations.

A spokeswoman for the Russian Foreign Ministry, Maria Zakharova, responded by reiterating Moscow’s position, saying it was willing to prolong the deal beyond 60 days if there was “tangible progress” in unblocking flows of Russian food and fertiliser to world markets.

However, Russian grain-export statistics suggest that no such block exists, with wheat flowing quite freely through its Black Sea ports to global consumers over the past eight months. In February, leading Black Sea consultancy, Sovecon raised its Russian wheat export forecast to a record 44.2 million tonnes (Mt) on the back of record production, strong global demand and the record pace of shipping. According to Sovecon, 26.4Mt was shipped from the beginning of the 2022-23 marketing year on July 1 last year to the end of January, and it expects a further 17.8Mt will be exported in the five months from February 1 to the end of June.

Moscow has also been pushing for the reopening of a pipeline that carries ammonia, a critical ingredient in nitrogen fertilisers, from the Central Russian city of Tolyatti, 1800km west to Ukraine’s Black Sea port of Odesa, for export to the world market. A substantial proportion of Russian fertiliser exports are indirectly subject to Western sanctions, and concessions to allow resumption flows have not as yet been agreed.

The original grain corridor agreement was brokered by the United Nations and Turkiye in July last year, and it was extended in November for another 120 days. The first grain shipments started in early August, using a corridor 310 nautical miles long and three nautical miles wide.

Ukraine is one of the world’s biggest grain exporters, and the so-called Black Sea Grain Initiative has been critical for global food security, helping alleviate the international supply concerns triggered by Russia’s invasion of Ukraine in February last year.

Corridor a crucial supplier

More than 25Mt of Ukraine grain has been shipped to 45 countries since the Black Sea Grain Initiative was signed last year. Almost 55 percent of all shipments have gone to countries classified as developing by the UN; this includes China. Breaking down the shipments by region, 45pc has gone to the Asia-Pacific, 42pc to Western Europe, 11pc to African countries and 1pc to Eastern Europe.

China topped the list of export recipients with 5.5Mt, followed by Spain with 4.3Mt, Turkiye with 2.7Mt, Italy with 1.8Mt and The Netherlands with 1.6Mt. Egypt, Israel, Bangladesh and Portugal rounded out the top 10 with 840,000t, 680,000t, 660,000t and 640,000t respectively, since the corridor opened eight months ago.

At 12.5Mt, corn exports make up 50pc of all vessel movements, with just under half of that total, or 6Mt, going to developing nations. China was the biggest buyer with 4Mt, or 32pc of the total. Spain was next with 2.1Mt, then Italy with 1.1Mt, The Netherlands with 1.07Mt and Turkiye with 720,000t.

Wheat was next on the commodity volume list at 6.7Mt, or 26pc of total exports via the grain corridor since inception. Shipments to developing countries totalled 4.4Mt, or 65pc of total wheat exports. The top two destinations were Spain and Turkiye with 1.65Mt and 1.2Mt respectively, and 42pc of total wheat exports. Next on the list were Bangladesh with 660,000t, and Italy and Indonesia, each with 340,000t.

Ukraine is the world’s biggest exporter of sunflower meal and sunflower oil. Meal shipments totalled 1.4Mt, with developing nations taking 83pc of the total. China was the only customer of note with 1.1Mt, or 80pc of total shipments in the eight-month period.

Sunflower oil shipments via the corridor to the end of last week totalled 1.4Mt, 6pc of total vessel movements, with 77pc going to developing nations. Almost 70pc of shipments went to just three customers, India with 410,000t, China with 250,000t and Turkiye with 200,000t.

Rapeseed and barley, both at around 1.1Mt, were the only other commodities with shipments exceeding the 1Mt threshold. Shipments to developing countries were 7pc and 59pc respectively. All the rapeseed except a 62,000t shipment to Pakistan and a small 9500t vessel to Turkiye went to European Union member states or the United Kingdom. Spain was the biggest barley customer with 370,000t, followed by Turkiye with 230,000t and China with 200,000t.

While the grain corridor has provided a lifeline for Ukrainian farmers and grain merchants, the extension of the deal is critical for global food security, increasing supply and easing food inflation pressures, especially in developing countries. With such a massive backlog of vessels waiting to enter and depart the Black Sea and Russian operatives continuing to stymie the West’s efforts to hasten the inspection and approval process, a 60-day reprieve provides minimal long-term supply certainty.


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