The Black Sea Grain Initiative was extended for 60 days on the 18th of March until May 2023. The deal was initially brokered with Ukraine and Russia by the United Nations (UN) and Turkey to allow the shipments of grains and other foodstuffs from several ports in Ukraine to ease the global food shortages and rising commodity prices created by the Russian invasion of Ukraine in 2022. The agreement, initially sealed in July 2022, was coupled with a Memorandum of Understanding between the UN and Russia on Russia's food and fertiliser exports and was extended for 120 days till November 2022 and then till March 2023. The recent extension is set to run till May.
The deal has proven beneficial in easing global food shortages. As of March 2023, Ukraine has exported over 25 million mt, including 12.2 million mt of corn. Wheat shipments have totalled 6.7 million mt, with exports involving rapeseed, sunflower oil, sunflower meal, and barley making up the balance. The primary destinations have been China, Spain, Turkey, Italy, and the Netherlands. China has benefitted the most from the deal, receiving over 5 million mt of mainly corn and sunflower meal, at 3.9 million mt and 1.12 million mt, respectively. Spain has received over 2 million mt of corn and 1.65 million mt of wheat, while Turkey received over 1.1 million mt of wheat.
Source: Tridge, UN
African countries have also been beneficiaries of the deal, as most of the continent heavily depends on wheat and corn shipments from the Black Sea region. Through the agreement, Ukraine has exported 313.3K mt of corn to Libya in 8 months, almost half of the 700k mt exported to Libya in 2021. Shipments of Ukrainian wheat to Tunisia reached 222K mt, more than a third of the yearly average shipped to the North African country before Russia invaded Ukraine. Ukraine also exported significant amounts to Egypt, Ethiopia, and Kenya, totalling 841.8K mt, 202.8K mt, and 283K mt of wheat, respectively.
Following the escalation of the conflict between Russia and Ukraine in Feb-22, global wheat prices spiked, peaking in May 2022. For example, US wheat prices rose to USD 13.94 per bushel on May-22, a 48.8% YoY increase. However, following the implementation of the Black Sea Grain Initiative, prices have mostly recovered to pre-war levels, trading below USD 7.00 per bushel on Mar-23. Anticipation over an extension of the deal also contributed to weak market prices over the past two weeks. For example, according to the USDA, US Soft Red Winter wheat futures fell to USD 6.82 per bushel on the 6th of March 2023, 52.1% lower than USD 14.25 per bushel on the 7th of March 2022, and the lowest price since July 2021, when wheat futures dropped to USD 6.74 per bushel.
Source: Tridge, USDA
The decision by Russia to extend the deal by 60 days has evoked mixed reactions. The extension will continue to alleviate food shortages and keep prices of commodities, such as wheat and corn, from spiking. On the other hand, Ukraine, Turkey, and the UN preferred an extension of at least 120 days, which would have provided ample time to clear the backlog of shipments from Ukrainian ports. Up to 60 commercial ships remain stuck around the ports of Odessa, Chornomorsk, and Yuzhny/Pivdennyi. There is also usually a slowdown in shipments leading up to the renewal date due to the potential risk that the agreement could collapse. As a result, this shorter renewal period could likely result in a lower volume of shipments of grains and oilseeds out of Ukraine through the corridor owing to buyers' concerns over shipments getting stuck.
Tridge expects the extension to keep global grain prices stable over the next two months. However, a further extension in May 2023 could depend on the removal of sanctions by Western powers on Russia following its invasion of Ukraine. Russia expressed discontent over these sanctions hindering its food and fertiliser export. Despite the country's food and fertiliser exports being exempt from sanctions, Moscow stated that the restrictions on logistics, payments, and insurance industries, have hindered shipments. It is also expected that China, Spain, and Turkey will stay as the main beneficiaries of the deal, especially following the long-term drought in Spain and the disaster in Turkey, which has affected both countries' food security.
For related stories, please refer to the links below:
1. How the Russia-Ukraine Conflict Has Impacted Africa
2. Why the World Needs an Extension of the Black Sea Grain Initiative
3. Sunflower Oil Prices Begin To Fall Amid an Ease in Bullish Sentiments and a Lacklustre Demand
4. Implications of Ukrainian-Russian tensions on global barley trade