Ukrainian Grain Exports Facing Renewed Uncertainty
The drone attacks on Russian naval assets in Crimea last weekend led to the suspension of the country's participation in the deal that has allowed Ukraine to recommence seaborne exports of grains. Still, despite the withdrawal of one of the agreement's signatories, Ukraine and Turkey said they were looking to maintain the flow of grains to the Bosporus. Several vessels laden with agricultural commodities did also depart from Ukraine on Monday and Tuesday. On Wednesday, following a statement by the Turkish President that the seaborne shipments would continue, Russia also announced that it would resume its participation in the accord.
The agreement had already come under pressure prior to the weekend’s suspension amid Russian grievances, resulting in increased price volatility for wheat and other agricultural commodities. However, pieces rose sharply during the early parts of the week as the risk of a complete suspension of the seaborne exports of Ukrainian grains would put renewed pressure on global food supplies.
The Russian u-turn has seen most of the gains that the wheat futures trading in Chicago recorded earlier in the week reversed. While the deal will remain at the mercy of Russian participation, the diplomatic climbdown could suggest that Russian leverage is waning and that any future threats to quit the deal would lead to less market volatility. Still, the agreement is due for renewal in two weeks, and continued Russian participation is far from guaranteed.
Despite the Russian withdrawal from the agreement over the weekend, the cargoes continued to flow across the Black Sea towards the Bosporus for inspection. Between Saturday and Tuesday, nineteen vessels left Ukrainian ports under the UN-monitored deal, carrying more than half a million tonnes of agricultural commodities. The Russian re-engagement in the programme will likely see the number of shipments remaining robust, albeit with minor disruptions due to the temporary suspension.
Official UN data and trade flow data confirm that the effects of the temporary action by the Russian leadership were indeed limited, with a drop in UN-monitored shipments on Tuesday. However, the volumes saw a recovery on Wednesday. Likewise, marketed tonnage for Ukraine also fell on Tuesday before rapidly recovering a day later.
As a potential sign of wariness among grain traders and shippers over the likelihood of a renewal of the deal amid rising Russian rhetoric over the deal’s shortcomings, Shipfix’s forward-looking cargo order data registered a sharp decline of new orders last week compared to the previous ones. After remaining at pre-war levels for most of the past three months, advertised weekly volumes fell to the lowest since the run-up to the deal being signed, even before the Russian suspension happened. Still, the early parts of this week saw daily cargo orders remaining significant in defiance of the Russian moratorium. Hence, there may be a perception of declining Russian leverage over Ukrainian grain exports in light of recent events, which could support future volumes.
While the brief Russian withdrawal from the agreement could lead to some short-term disruptions with a delay to vessels arriving and departing Ukrainian ports, Shipfix’s order data for November already point towards another month of extensive activities in the safe corridor across the Black Sea. Since a somewhat tentative start in August, the number of cargo orders for grains loading in Ukraine has risen well above what was seen a year ago. Even if the current month is only a few days old, the number of orders is already on the path towards another strong showing. Also, in terms of volumes, the order data continue to remain above the five-year average.
Against a background of rising uncertainty over the future of the deal and the short-lived Russian withdrawal, tonnage supply has remained robust over the past three months. The vessels available for the trade have typically belonged to the older and smaller categories. However, according to Shipfix’s data, larger vessels have become increasingly available. In October, the balance of the marketed aggregate tonnage shifted towards Panamaxes and Supramaxes. Still, in terms of the number of vessels, the smaller segments still dominate.
It is often said that a week is a long time in politics, but it appears it could be an eternity in geopolitics. This time a week ago, traders and analysts debated the prospects of a renewal of the Ukrainian grain export deal in a few weeks. Since then, Russia has, over the course of a few days, both left and rejoined the agreement. While the renewal of the deal is yet to be agreed upon, the suggestion that several countries were prepared to maintain the flow of grains even without Russian involvement could put less emphasis on the deal. Hence, Ukrainian grain exports could be supported even without an agreement. Still, such a development would be dependent on the availability of vessel and cargo insurance.