Faltering Russian Wheat Shipments

Shipments from Russia in July and August, the first two months of the new season, fell 22% to 6.3 million tons from a year earlier, according to ship lineup data from Logistic OS. 

Last month, Ukraine restarted shipments, exporting 1.5 million tons of food through the grain corridors established under a deal brokered by the United Nations and Turkey.

While the cargoes from Ukraine’s Black Sea ports are little more than a quarter of pre-war volumes, the government hopes shipments will pick up in the coming months.

The slow pace of Russian wheat exports is adding pressure to global supplies as harvests elsewhere are hit by drought. Food was exempted from western sanctions, but bankers and insurers are cautious about doing business with Russia and shipping lines are wary of sending their vessels into a war zone.

 “We have reputational risk or informal sanctions,” Dmitry Rylko, General Director of Moscow-based institute IKAR, said in an interview. “They cause problems with finding vessels for Russia Black Sea, and we see some banks don’t want to open letters of credit for wheat of Russian origin.”

Since the start of the new season, Russian shipments are no longer constrained by an export quota that was in place for the second half of the previous season to protect domestic supplies. Now the government is complaining about restrictions on trade, even after the European Union and United States stressed that food is not targeted by sanctions.

“Despite the statements made by Washington and Brussels that anti-Russian sanctions do not apply to food and fertilizers, the blocking obstacles to bank settlements, insurance and transportation of goods that have arisen as a result of their introduction still remain,” Russia’s Foreign Ministry said last week.

Russian farmers are also reluctant to sell wheat as a strong ruble and high export tax make it less attractive, while IKAR said some European customers weighted their orders to earlier in the year.

Russia and Ukraine signed a deal in July to release millions of tons stuck in Black Sea ports. The first cargoes were carried by vessels trapped in Odesa and two other Black Sea ports, while another 1.15 million tons of grain was shipped by rail in the first 23 days of August, according to Ukragroconsult.

Still, it remains to be seen whether shipments can be accelerated further as Ukrainian forces mount a counter-offensive in the south of the country. Before the war, 5 to 6 million tons of grains were typically dispatched monthly via its Black Sea ports.

The United Nations, which brokered the deal to end the logjam at Ukrainian ports, has emphasized the importance of Russian fertilizers and agricultural commodities making it to customers.

Russian exports are starting to speed up slightly, something that’s essential to the global wheat market, according to Agritel. IKAR expects shipments to rise to 4 million tons in September, though that would still be behind the 4.7 million tons exported a year earlier.

“The wheat production of the five major exporters outside the Black Sea is barely progressing compared to last year,” Agritel analyst Nathan Cordier said at a briefing. “It will not allow them to cover a failure of Ukraine or Russia.”

Black Sea agri-bulk exports fall 35% in April 2022 due to Ukraine war

Assessing the impact of the conflict on exports S&P Global Market Intelligence said total seaborne agri-bulk shipments from the Black Sea region in April fell 35% year-on-year to 4million tons.

Shipments of corn and barley from the Black Sea area were hard hit, down 76% to 891,000 tons, and down 82% to 65,000 tons respectively. However, wheat shipments were reported to be up 44% at 3million tons.

S&P noted that Black Sea agri-bulk shipments declined to almost all import regions and territories in April including North Africa, Middle East, Northwestern Europe, Japan, Korea, Taiwan, mainland China, Southeast Asia and West Africa. The only region to see a rise in shipments was the Mediterranean, with an increase in agri-bulk exports from the Black Sea region of 15% to 1.2m tons

A report issued this week by insurers Allianz Global Corporate & Specialty (AGCS) highlighted that the biggest impact of the war on shipping so far had been on vessels trading to the Black Sea and Russia, with Ukraine’s major ports, including Odessa closed by a Russian blockade. The insurer noted that Ukraine moves 70% of its exports by sea and some 99% of its grain exports are moved by ship.

With the war in Ukraine increasingly looking to be a drawn out conflict there could be further negative impact on agri-bulk exports.

Pranay Shukla, Associate Director at S&P Global Market Intelligence said, “There could also be further significant downside risks to the Black Sea agri-bulk forecast for this year depending on how long the war extends and if Ukraine can manage its exports from Romania and Poland, while upside risks could arise from Russian wheat exports on expected strong domestic wheat harvest.”

S&P currently forecasts that agri-bulk shipments from the Black Sea region will decline 37% year-on-year to 11.2, tons in the second quarter of 2022, and by 20%YoY to 83.9 million tons for the full year in 2022.

“The insurance industry is likely to see a number of claims under specialist war policies from vessels damaged or lost to sea mines, rocket attacks and bombings in conflict zones,” explained Justus Heinrich, Global Product Leader, Marine Hull, at AGCS. Insurers may also receive claims under marine war policies from vessels and cargo blocked or trapped in Ukrainian ports and coastal waters.