Ukraine: Expansion of Ukraine grain exports may ease pressure of high global commodity prices
On July 22, 2022, delegations from Ukraine, Turkey, Russia, and the United Nations signed an agreement to provide safe passage for grains from select Ukrainian ports (Odesa, Chornomorsk, Pyvdenny), offering a potential corridor for movement of Ukrainian grain through the Black Sea. This was welcome news for global importers as the expansion of Ukraine’s export capacity for corn, barley, and wheat may ease the pressure of high global commodity prices, USDA said in its August report.
The benefits for Ukraine are numerous, not least of which is the stimulation of the economy and influx of funds. For Ukrainian producers and exporters, the ability to ship stored grain at the ports that would otherwise be sitting idle, based on the current pace of exports, is significant. Few grain silos in Ukraine are equipped with the aeration systems essential for long-term storage, putting farmers and exporters at risk of losing a significant share of their commodities, and in turn, the capital required for planting next season.
While there is cautious optimism about the deal, several roadblocks exist, namely continuing conflict in and around port infrastructure (including transshipment silos), the demining of ports and routes, and persistent high logistical costs related to freight and insurance rates.
Grain exports from Ukraine in the past have been highly seasonal with the largest volumes shipped just after harvest. Barley exports are robust between July and September, and wheat exports are largest between August and November. Corn volumes peak between November and May. Russia’s invasion of Ukraine has constrained grain exports this year, leaving larger-than-normal supplies in storage. While exports via land have helped to alleviate the strain on storage capacity, production from the current wheat and barley crops and upcoming corn crop are expected to far exceed domestic consumption needs in a highly export-dependent country. Despite the aforementioned roadblocks to the success of the Black Sea grain corridor, this potential relief valve for Ukrainian grain supplies comes at a timely moment, as exports historically pick up substantially over the next several months.
As of this publication, about a dozen ships have left Ukrainian ports, primarily loaded with corn. USDA raised its 2022/23 forecasts for Ukraine corn exports 3.5 million tons to 12.5 million and Ukraine wheat exports 1.0 million tons to 11.0 million this month, in part reflecting expectations of improved export opportunities with the agreement.
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