What’s Next for Ukraine’s Grain Corridor Deal?

What’s Next for Ukraine’s Grain Corridor Deal?

On 22 July, Russia and Ukraine signed a deal to allow grain exports to flow once again from Black Sea ports such as Odesa and Mariupol after months of negotiations largely led by Turkey. The deal gives Ukraine 120 days to export grains from key ports, with the aim of exporting 4-5 million tonnes per month, comparable to pre-war levels.

If the corridor does go ahead as planned, world wheat supply would be greatly bolstered. Grain exports from Ukraine have been limited due to the lack of ocean shipping routes, forcing exporters to move grain via rail. With access to ports, some market participants have suggested that 2-3 million metric tonnes could be shipped in the first month. According to the USDA, the global deficit is forecast to be around 10 million metric tonnes. Therefore, this increase in supply would ease global tightness, and sources suggest could lead to a softening of prices.

However, industry sources throughout the sector have raised doubts about Russia’s commitment to allow the exports to go ahead, citing the bombing that occurred in Ukraine’s key port Odessa mere hours after the deal was signed.

A Ukrainian trader commented to Mintec: “they targeted Odesa knowing full well this is where a lot of the grain for shipping is being stored. We are still assessing the damage as we speak but one of our factories was hit nearby and it doesn’t look good. Carpet bombing a grain port, does this sound like a grain corridor to you?”

In addition to these concerns, shipping from the area is precarious due to sea mines floating near and within shipping lanes. The hazardous nature of the route could see some insurers refusing to underwrite vessels in and out of Ukrainian ports, which could curtail such shipments before they occur.

One wheat trader noted, “there are too many uncertainties with the grain corridor. I don’t think it will be long before something goes wrong and the deal is off the table. It is far too premature to think that wheat supply issues are solved now, and in my view prices will move upwards as the optimism fades in the coming week”.

Prices have been slow to react today as market participants assess the impacts of the deal as well as the port bombing in Odessa. Euronext Wheat futures [Mintec Code: WHT2] (SEP-22) have moved €7/mt higher from Friday’s close as the market looks for more certainty in the coming weeks.