June 19, 2024

Reduction in the Ukrainian Grain Market with Medium-Term Impacts

When the export corridor opened on 1 August 2022, it helped secure supplies for the importing nations and reduce prices

The collapse of the Black Sea export route, which allowed for the export of more than 32 million tons of Ukrainian grain in the past year, should not have much immediate impact, but in the medium term create market tension and raise food prices.

The situation is very different from February 2022, when Russia invaded Ukraine, which cut off shipping in the Black Sea, the main export route for Ukrainian agricultural products.

Kyiv was the world’s top exporter of sunflower oilseed and the fourth largest for wheat and corn, and its exit from the world market sent prices soaring in May.

With the opening of the export corridor on August 1, 2022, it has helped ensure supplies for importing nations and reduce prices, even if the conflict has reduced Ukrainian farm output.

Wheat output is expected to fall to 17.5 million tonnes in the 2023-2024 season from 33 million tonnes in the 2021-2022 season.

For corn, production is expected to fall to 25 million tons from 42 million tons.

“In 2023-2024, Ukraine should export six million less tons of wheat and 10 million less tons of corn,” said Gautier Le Molgat, an analyst at Agritel, which provides data and analysis on agricultural markets.

The lack of immediate impact is partly due to timing: it’s harvest season in the northern hemisphere right now.

“The needs of the future will be clear at the end of autumn,” said Le Molgat.

“It’s been a quiet period on the markets that didn’t react much to the news that the deal was put on hold,” he said.

European wheat futures edged higher, and fell in the United States.

In addition, Russia’s refusal to renew the agreement was expected and work was already underway to undermine it.

In recent months “we have noticed that the Bosphorus is congested with very slow traffic,” particularly due to the low number of Russian inspectors for the ships using the corridor, said Edward de Saint-Denis, a trader at a commodities trading firm. Plantureux & Society.

Even before the opening of the Black Sea corridor, the EU created “Solidarity Lanes”, land and river routes designed to facilitate the export of EU agricultural products through Europe.

The Farm Foundation, a think tank specializing in agricultural issues, estimates that half of Ukraine’s agricultural exports already take these routes.

“One of the questions that must be asked is whether the EU, which has taken half of Ukraine’s grain offered since the beginning of the conflict, has the ability to re-export those amounts,” said Olia Tayeb Cherif, director research at the Farm Foundation.

The EU wants to improve its transport capacity by harmonizing the railway gauge with Ukraine.

“They can increase the speed a little, but that doesn’t solve the problem of the volumes involved,” said Saint-Denis.

There is currently no shortage of wheat on the world market. But, “wheat is the most exportable in Russia with 12.5 million tons of stocks, and it is the cheapest wheat in the world,” noted Damien Vercambre at the Intercourt commodities brokerage.

Russia could mitigate some of any shortages on the world market due to a lack of Ukrainian wheat. But the fact that many countries are more dependent on Russia could be a bitter pill.

The EU, which is expected to have a normal harvest, could also help meet the needs of importing countries.

But bad weather can quickly change the outlook.

The wheat and corn markets are also in very different positions right now. China, the world’s top corn importer, could turn to Brazil, which had a record harvest and is selling at a lower price.

For wheat, production could be sufficient but a drop in Ukraine’s export volume could pose a problem.

“Closing the corridor extension will affect food price inflation, which will affect food security,” said Olia Tayeb Cherif of the Farm Foundation.

Some importing nations are already struggling to pay current prices, such as Egypt.

The UN’s World Food Program is also at risk of being disrupted because it comes from Ukraine’s wheat that it supplies to Afghanistan, Yemen and African nations, Cherif said.

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