Black Sea Initiative – deal or no deal? Grain market daily

• New crop (Nov-23) UK feed wheat futures closed at £197.35/t yesterday, down £3.15/t from Tuesday’s close. UK markets followed global price movements down yesterday as talks over the Black Sea Initiative continue (read more below).
• Paris rapeseed futures (Nov-23) closed at €417.25/t yesterday, down €13.25/t from Tuesday’s close. Rapeseed markets were pressured by downward movements in US soyabean markets, with US soyabean plantings progressing well, as well as poor US export demand.

There is now just one day to go before the expiry of the Black Sea Initiative (Ukraine export corridor deal), and as of yet (1pm) a further extension of the deal has not been agreed. The deal was initially coordinated by the UN and Turkey, back in July 2022 for shipment of foodstuffs and fertiliser from Ukraine via the Black Sea for 120 days. All parties (Russia, Ukraine, Turkey and the UN) agreed to extend the deal for a further 120 days in November, but then Russia only agreed to an extension of 60 days in March when it came up for expiry again.

These 60 days run out tomorrow (18 May), and Russia have said that they will only extend it again if their demands are met. While no sanctions have been put on exports of food and fertiliser from Russia since they invaded Ukraine, restrictions on payments, logistics and insurance have reportedly caused barriers to shipments (Refinitiv). Although, it’s hard to believe that Russia have experienced ‘barriers’ when it comes to exports, with the sheer volume of wheat alone that has left the country this season!

With the last ship under the current deal leaving Ukraine this morning, will this be the last vessel carrying grain to leave Ukraine in a while? The answer to this question very much sits in the hands of Russia and whether their ‘requirements’ have been met. This is the most ‘up to the wire’ that any extension agreement has been made, and an announcement should be made today over the future of the Black Sea Initiative.

No deal

So, what happens if the deal is not extended again? While this wouldn’t be the favoured outcome, even Ukraine’s Ag Minister said a week or so ago, it wouldn’t be ‘apocalyptic’. Ukraine is in a fortunate position, geographically speaking, with a number of EU countries bordering it. If Ukraine were blocked from shipping via the Black Sea, then there is the option, as we have already seen, to export grain over the boarder of neighbouring countries via rail, truck and river. While neighbouring EU countries have bumper stocks of grain this season, partly due to cheap Ukrainian supply, it is likely that Ukrainian grain will be allowed to enter these countries as long as it is to transit to further destinations, as is the case at the moment. Obviously exporting grain this way, takes more time/ will be more expensive. The latter would likely add pressure to farmers margins in Ukraine and could impact volumes produced going forward. Its also important to note that Ukraine are expecting smaller crops this year again, due to the implications of the ongoing war, which somewhat alleviates the need to export the more typical high levels we are used to seeing.

Unlike when war broke in Ukraine, it’s unlikely we will see global grain prices skyrocket again and sustain a high level for a long period of time. The war is now pretty much factored into markets, and we have seen a shift in markets moving with the wider fundamentals instead of just geopolitics over recent months. The EU and Russia are expected to have hefty carryout stocks of wheat this season, while production globally is expected to be strong too, which is weighing down on markets. The outlook for maize is also a heavy one, with record output projected for 2023/24.

While I am not denying that a no deal would likely lead to some price volatility, the wider global S&D picture for grains is looking amply supplied for 2023/24, which is adding a more bearish tone to markets. 

Deal

If the deal is renewed again, it is likely it would be for 60 days again, rather than 120 days, as its unlikely all of Russia’s demands will have been met. The extension of the deal would somewhat cement the bearish sentiment into markets, with the relatively ample supply picture for 2023/24.

It’s likely then, we would see ourselves in a similar situation in another 60 days, pondering over what may happen. However, by that point Northern Hemisphere harvest will be underway and market sentiment may have shifted or firmed depending on the quality and quantity of crops coming in.

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