Grain corridor slams shut with a bang

By James Urquhart

26th July, 2023 

Despite the ongoing conflict in Ukraine, the last few weeks in grain markets almost felt like we had returned to the good old days when we wrote about weather forecasts and crop conditions rather than pandemics, politics and Putin. It wasn’t to last.

Futures markets had been gathering some momentum behind a picture of deteriorating conditions across the Canadian Prairies and the US Plains, but the wildcard in the deck was the looming deadline to extend the Black Sea grain export initiative. The market had largely priced in the fact that Russia would reject any extension to the agreement and so last week’s reaction to the initial reaction to the news that the deal was off was relatively ho-hum. However, Russia’s decision to punctuate the announcement with missiles and drone attacks on key Ukraine grain export terminals provided the impetus for a much more spirited rally and markets have bounced around wildly since.

Had it endured, July 22nd would have marked the 1-year anniversary of the opening of the Black Sea grain export corridor, which has provided a critical avenue for the movement of grain from Ukraine to the global market. Whilst the deal has seen the shipment of nearly 33 million tonnes of product out of the Ukraine, in recent weeks the impact of the initiative has been in decline as Russian officials, frustrated at Western sanctions and complaining of a raw deal, slowed vessel inspections and significantly reduced the number of vessels leaving Ukraine’s Black Sea ports.

Last week’s attacks on Black Sea export infrastructure and the subsequent threats of military action towards grain vessels by both sides of the border would appear to have dashed any hopes of continuing the export task via the Black Sea without Russia’s endorsement. Ukraine remains a key input to solving the global wheat supply and demand equation and so the market now takes stock of the capacity and costs of exportation via alternative supply routes. Barges via the Danube to the Romanian port of Costanta have played a large role in the solution to this point, as have the overland options of trains and trucks.

The situation in the Black Sea has attracted most of the attention in recent days, but there are other influences that the market will be watching closely. India’s move to ban non-basmati white rice exports and progress of the burgeoning EU harvest are going to influence price action from here. If nothing else, expect volatility; rallying on headlines and retreating on bouts of profit taking.

Whilst on paper global wheat supplies are ample, any impediments to supply or logistics places greater pressure on production in key supply regions, and so one eye will remain firmly on those weather forecasts and crop conditions.