Russian grain will accumulate in the Sea of Azov and eventually push prices lower — analyst

Problems with vessel traffic through the Kerch Strait could temporarily halt about one-quarter of Russian grain flows from the Sea of Azov region. Once navigation resumes, the accumulated supplies will attempt to regain lost demand, which could quickly drive prices lower, forecasts Rory Deverell, author of Fryers Reports and owner of Black Silo Commodity Consulting, in a video on his YouTube channel.

He noted that the Sea of Azov is relatively shallow, so grain from local ports is mainly exported by small coaster vessels. These ships pass through the Kerch Strait and mostly carry cargo to nearby destinations, including Turkey and ports in the Sea of Marmara.

Meanwhile, larger vessels transporting Russian grain to Egypt, Jordan, Saudi Arabia, and other distant markets are primarily loaded at Novorossiysk and Tuapse. As a result, disruptions in the Kerch Strait mainly affect the Sea of Azov ports and coaster shipments.

According to Deverell, the restrictions could temporarily halt around one-quarter of Russian grain exports from the region. However, it remains unclear whether the disruption will last for hours, days, or weeks.

He believes the market’s initial reaction will be stronger demand for EU-origin grain. Some buyers may shift purchases to Constanța, Varna, and Burgas, through which grain from Romania, Bulgaria, and neighboring countries is exported.

“If you’re a buyer and you need wheat, or you’ve sold grain from this region and need wheat to fulfill your contract, you’ll pay a few dollars more for the reliability of the supply chain from that region,” Deverell said.

This could support both EU grain exports and grain prices in the European Union. At the same time, grain accumulated in Russia’s Sea of Azov region will come under pressure because it cannot be shipped promptly.

However, Deverell believes this effect will be temporary. Once vessel traffic through the Kerch Strait resumes, Russian grain will aggressively compete to recover the demand that shifted to European suppliers during the disruption.

“When that happens, all the grain that has been sitting there unable to move will work very hard to regain the demand it lost to that region. And prices will fall very, very quickly,” he said.

According to Deverell, future price movements will depend on how long the restrictions remain in place. If the strait stays closed, the market reaction could intensify. However, once the logistical bottleneck is resolved, prices could retreat just as rapidly.

“They will come back down just as fast as they went up. It’s all about timing,” he concluded.

Tags: restrictions, war, Russia, export, grain, Black Sea region