Mixed signals in grain trade as Ukrainian corridor renewal looms

Antonio Guterres, UN Secretary-General, arrived in Ukraine yesterday, via Poland, to meet with Ukraine’s President, Volodymyr Zelensky. The pair were due to discuss renewal of the Black Sea Grain Initiative – a corridor that enables Ukraine to export grain from its Black Sea ports, unhindered.

The existing deal, brokered by the United Nations and Turkey last July and renewed in November, is set to run until March 18. But the extension of the Black Sea Grain Initiative (BSGI) is by no means certain. Russia has indicated that it wants restrictions on its own grain exports to be lifted in order to extend the BSGI.

Ukraine needs stored grain for export, so make room in the silos for this year’s production. The European Commission estimates that Ukraine accounts for 10% of the world wheat market, 15% of corn transactions and 13% of barley production.

In normal times, grain exports from Russia and Ukraine provide a huge amount of staple foods consumed in many countries around the world, and contribute to the supply of essential staple foods and cooking oil. Meanwhile, grain shipments from Black Sea ports are an important source of business for many bulk carrier owners.

However, while the UN-brokered deal has allowed exports to continue, volumes have been significantly lower, falling every month since the October peak. Reduced grain shortages are said to have contributed to food shortages in many highly dependent countries and sharp increases in food prices in other regions.

There are mixed signals for shipowners. The end of China’s protracted lockdown has stimulated demand for grain replenishment, brokers report, and South America’s grain harvests are beating expectations. Meanwhile, buyers are lining up for relatively cheap Russian produce and there are unsold grain stocks in the US.

The fleet of smaller bulk carriers most commonly used to transport grain consists of many older vessels. These are expected to fare poorly under the IMO’s new CO2 regulations, which came into force on January 1st. It is expected that many will use engine power limiting and vessel speed reduction as a compliance strategy, but it is believed that a significant number of older vessels will be phased out.

The Baltic Exchange Dry Index has risen sharply from its low of 525 in mid-February and has gained another 2% since yesterday to close at 1327.

Source: News Network.