Black Sea Ports Activity. Start of Grain exports by sea?

Source:  UkrAgroConsult
Author:  Elizaveta Malyshko

Article author:

Elizaveta Malyshko
Head of Market Research

The market was in prevail skeptical as for the possibility of signing an agreement on Ukrainian grain exports from the Black Sea ports. However, on July 22, the Ukrainian and russian delegations did sign an agreement with participation of Turkey and UN. The agreement provides for the possibility of grain shipments from Ukraine’s three deep-sea ports of Greater Odesa.

However, the very next day, the port of Odesa came under fire from russia. No reaction of other parties to the agreement followed in response, which suggests that further russian shelling may occur.

As before, the grain community is unconvinced about prospects of shipping from those ports.

On the one hand, the attractiveness of shipping by sea is undisputable. The caravans opens up an opportunity to work with destinations such as China, Indonesia and Southeast Asia. One of the first signals that major traders will consider the possibility of exporting by sea is the formation by the State Consumer Service of Ukraine of traditional lists of companies intending to supply mainly barley to China.

On the other hand, even if gain vessels are not attacked directly, their entry for loading will be expensive.

It is unlikely that insurers will offer reasonable rates for ships entering the waters of countries in open conflict. Old inexpensive boats may be sent for the first trial calls.

The very possibility of exporting by sea triggered a price decline both on the Chicago exchange and in the cash market. On the day of signing the deal, wheat and corn prices dropped by 8.5% and 3.5%, respectively. However, later they partially recovered.

The additional sea corridor (formerly the main one from Big Odessa) will help to relieve farmers from the pressure of surplus stocks, even if the exports via these sea corridors turn out to be small. If so, added demand will support domestic prices and help farmers reduce losses, albeit slightly.

Farmers say the issue of their business profitability is now on the back burner. Farmers want to sell their grains and oilseeds.

The main is to get rid of stocks and make room for the new harvest. Without this, farmers might turn away from winter crop planting. If large corn areas end up unharvested, farmers will not sow corn in spring either.

Nobody is operating under a long-term strategy now. It is difficult to make far-reaching plans in a changing environment. In fact, the new strategy now is tactics.

We suppose the big grain exporters behavior is not based now on the long terms hold strategy but rather on intentions to calculate the risks of the grain exports by sea.

UkrAgroConsult keeps monitoring these factors to perfect its market analysis and forecasts.

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