Grain Market
I last spoke to the Club on 30 August 2022, some 14 months ago and I don’t think anyone, least of all
Vladimir Putin, believed that this war would still be unresolved today. Russia invaded Ukraine on Feb
24, 2022, and immediately imposed a blockade on all shipments of grain from Ukrainian ports via
the Black Sea which lasted 5 months, crippling the Ukrainian grain industry.
The issue is that between them, Russia and Ukraine are the World’s No 1 grain exporter providing
vital food sources for much of the 3 rd World, particularly North and sub-Saharan Africa. Grain prices
immediately rose dramatically creating a food crisis with even Humanitarian Food Aid being heavily restricted.
A deal was soon brokered by Turkey and the UN with Russia to allow the export of Ukrainian grain
through the Black Sea as well as Russian grains and fertilisers. This Agreement worked well but was
due to expire in late November 2022 after some 9 million tonnes of grain had been exported, but
common-sense prevailed and it was extended for a further 4 months to allow continued grain movements.
I
In the meantime, matters were getting worse with Russia carrying out missile attacks on Ukrainian
port facilities and setting land mines over reputedly some 2 million hectares of Ukrainian farmland
to limit grain production and further impact the Ukrainian economy.
In response Ukraine sought alternative routes via rivers, roads and rail through Romania, Slovenia,
Poland and Hungary but the quantities were relatively small relative to demand. Ukraine’s grain
production for 2023 was estimated to be down 37% compared with 2022, which under the
circumstances is still remarkable.
The infamous grain deal was extended twice for two months in March and May of this year whilst
the Russians attempted to extract more benefits from the arrangement and at the same time
inflicted untold damage on the Eastern parts of Ukraine. The International grain trade stepped away
from what they saw as a steadily deteriorating situation with Cargill, Viterra and Louis Dreyfus
closing their Russian offices in June 2023.
Through mid 2023 Russia continued with its bizarre activities, withdrawing from the Turkish/UN
brokered Grain deal, but hoped to placate the international community by offering free grain to
struggling African countries, little of which actually transpired. The market factored all of this into its
pricing, anticipating that Turkey and the UN would provide convoy protection for Ukrainian ships
moving through the Black Sea, and increasing its shipments via barges on the Danube.
At roughly the same time Turkey voted to admit Sweden into NATO and the Wagner group mutinied
and headed for Moscow, both of which were thought to have weakened Putin’s position. Then Putin
negotiated a mega grain deal with China to supply 72 million tonnes of Russian grain over 12 years,
but as China also purchases a third of Ukraine’s wheat via shipments through the Black Sea it was
hoped that this would restrict Putin’s desire to sink grain vessels sailing from Ukrainian ports as they
could be destined for his new trading partner, China!
However, the Russians continued to attack Ukrainian grain loaders, an action that the Ukrainian
Agriculture Minister described as a Terrorist act, not against Ukraine, but against the whole World.
Ukraine’s inability to export its normal vast quantities of grains through the Black Sea has placed
ever-increasing financial pressure on its farmers who are unable to source fuel, seed and fertilisers,
with many choosing not to plant at all, other than for home consumption. However, in early
October, Poland and Lithuania reached an agreement with Ukraine whereby Ukrainian grain will
pass directly through Poland to Lithuanian ports for export, which should help significantly.
In Summary, and as I see it, the World needs Ukrainian grain, but it will take many years
to recover from this disastrous invasion.
