Ukrainian grain exports over the past couple of months have soared to levels not seen since before Russia’s invasion in February 2022, thanks primarily to the unmitigated success of its new protected maritime export corridor, which was established following Russia’s withdrawal from the UN-brokered Black Sea Grain Initiative.
Kyiv launched what it called a humanitarian shipping corridor in August last year to link Ukraine’s Black Sea ports with its global customer base, several weeks after Moscow refused to agree to a new accord to allow Ukrainian agricultural exports through the contested Black Sea. Russia threatened to treat all vessels moving to and from Ukraine’s Black Sea ports as potential military targets.
Rather than taking the quickest route, navigating directly through international waters to the Bosphorus Strait, vessels hug the coastlines of Ukraine and North Atlantic Treaty Organisation (NATO) members Romania, Bulgaria and Greece escorted by the Ukrainian Navy. Sailing through NATO waters provides extra security, and the new corridor does not require the laborious and slow inspections Russia required under the previous deal.
The Ukrainian government cites the effective use of drones against Russian naval vessels and the recapturing of Snake Island near the Danube delta as key initiatives allowing Kyiv to launch the new route. The underwriting by London insurers for a policy that provides US$50 million of hull war risk cover and US$50 million of protection and indemnity insurance for every voyage has encouraged ship owners to use the corridor and, coupled with growing traffic volumes, has significantly decreased the cost of sea freight from Ukraine to international customers.
As of Friday, February 9, Ukrainian grain exports by all trade pathways in the 2023/24 marketing year had reached 25.2 million metric tonnes, down from 28.8mmt for the same period in 2023/24. This incorporates 1.3mmt of grain exports so far this month, and includes shipments from its Black Sea ports, the smaller ports on the Danube River and road and rail movements across its Eastern European land borders, primarily Poland.
Total exports of grain, oilseeds and vegetable oils in January reportedly topped 6.36mmt, down from 7.18mmt in December, but still well above the 5.48mmt shipped in January last year. These also numbers compare favourably with January 2019 and 2020, when total exports were around 6mmt. Included in the December number were 1.73mmt of wheat and 3.45mmt of corn, up 34 per cent and 45 per cent, respectively, from November.
Grain exports via Ukraine’s Black Sea ports totalled 4.29mmt in January, 10.6 per cent lower than the 4.8mmt shipped in December, but 50 per cent higher than the 2.86mmt loaded in January 2023. However, both numbers are higher than the best monthly total achieved under the Black Sea Grain Initiative, that being 4.2mmt in October 2022. Before Russia’s invasion in February 2022, Ukraine routinely exported as much as 6mmt of agricultural produce per month through its Black Sea ports.
The port of Chornomorsk shipped the biggest volume in January with 1.9mmt of grain, oilseeds and vegetable oil, followed by Odesa with 1.3mmt and Pivdennyi with 1mmt. Collectively, these deep-sea ports accounted for 67.5 per cent of total agricultural exports for the month.
Shipments via the smaller Danube River ports also declined last month, dropping 11 per cent compared to December to around 1.1mmt, making up 27 per cent of total agricultural exports. Izmail was the most significant contributor with 773,000 metric tonne and Renni loaded out 313,000mt. Exports of agricultural produce by train fell by 18 per cent in January to 686,000mt, 16 per cent of total exports last month.
Ukraine harvested around 81.3mmt of grain and oilseeds in the 2023/24 season, with corn and wheat the two biggest crops. Corn production in 2023/24 finished up at 30.5mmt, according to the USDA, 13 per cent higher than the previous season but 9 per cent lower than the average of the five years prior to the Russian invasion. Wheat output totalled 23.4mt, thanks primarily to an improvement in the average crop yield. This is 9 per cent higher than production in 2022/23 but still 16 per cent lower than the five-year, prewar average.
A recent update from the Ministry of Agriculture has pegged Ukraine’s exportable surplus of grain and oilseeds combined at around 50mmt for the 2023/24 marketing year. In the February global supply and demand update released last Friday, the USDA increased its Ukraine corn export estimate by 2mmt to 23mmt, a reflection of the success of the humanitarian corridor. To balance the books the USDA reduced domestic consumption by 0.5mmt to 5mmt, which led to a 1.5mmt decrease in the end of season carry-out to 5.3mmt.
Nevertheless, The USDA’s Foreign Agricultural Service seems far more optimistic about the potential impact of the new export corridor on 2023/24 Black Sea export volumes. FAS released its quarterly grain and feed update for Ukraine on February 2, calling corn exports 29.2mmt on production of 30.6mmt. With domestic consumption pegged at 4.1mmt, that leaves a very skinny carry-out of 2.8mmt.
On the wheat front, the USDA increased exports by 1mmt last week to 15mmt by taking 0.6mmt out of the domestic consumption to land on 8mmt and decreasing carry out by 0.4mmt to 4mmt. On the other hand, FAS has exports 2.7mt higher at 17.7mmt, production slightly lower at 23.1mmt, and domestic consumption lower at 7.7mmt, but ending stocks extremely tight at less than 1.4mmt.
The biggest impediment to the Ukrainian export outlook could well be the Red Sea shipping crisis. Passage via the Red Sea is vital for Ukraine’s Black Sea export program into Asia. As much as 30 per cent of recent shipments via the new corridor are heading to China. Pakistan, Bangladesh and Indonesia are other key Asian destinations. January exports dropped relative to December, and February is unlikely to rebound while the issue persists.
Strikes on ships navigating the Red Sea by the Iranian-backed Houthis rebels off the coast of Yemen have forced many ship owners to divert away from the Suez Canal and sail around the Cape of Good Hope, a decision that will add at least two weeks to the journey. This will clearly hinder export demand from Asia in the first half of 2024 and could lead to more cheap Ukrainian grain hitting European Union markets, further angering its frustrated farmers.
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