Ukrainian traders assess future grain trade flows amid prospects of war's end

Following US President Trump's meeting with Russian President Putin on Feb. 12, Ukrainian traders looked ahead to the potential impact of a peace deal on grain prices and exports from Ukrainian ports. Among other things, traders anticipated lower insurance and freight rates and the potential reopening of Mykolaiv port to ease overcapacity at other ports.

Ukraine, known as the "breadbasket of Europe," halted grain exports following the onset of the war in February 2022, and within a week, Ukrainian export prices surged for wheat by 13.7%, corn by 19.9% and sunflower oil that shot up 35.4%, according to Platts pricing data from S&P Global Commodity Insights.

After the Black Sea Grain Initiative was started in July 2022 to facilitate grain exports via Ukrainian ports through the Black Sea with the help of Russia, Turkey and the UN essentially failed, Ukraine began sending product via barge to Constanta, Romania for export to global markets.

Once the initiative expired a year later, in August 2023, Ukraine created its own sea corridor for exports from Pivdennyi, Odessa, and Chornomorsk (POC) ports, leading to a significant drop in cargo flow to Constanta. From December 2023 to August 2024, Ukraine's agricultural exports from Constanta fell by 3.7 million mt year-on-year.

A wheat trader said, "It is no longer cost-effective to transport goods from Ukraine to Constanta; it is cheaper to deliver from POC," with POC elevation costs decreasing to $9/mt in February 2025 from $15/mt October 2024. The lower costs from POC ports resulted in congestion at those ports and traders noted a peace deal could alleviate that traffic if UKraine's Mykolaiv port is able to reopen.

Whether increased flows from Ukraine results in lower prices was uncertain, however, as grain prices have already fallen below where they were when the war started.

Platts assessments show that prices for wheat, corn, and sunflower oil have significantly decreased with a drop of 55% for wheat, 53% for corn and 73% for sunflower oil from March 1, 2022, to Feb. 13, 2024.

Platts assessed sunflower oil FOB Black Sea Ukraine at $1,131/mt, Ukraine corn FOB POC at $228/mt and Ukraine wheat 11.5% at $238/mt for March-loading on Feb. 13.

Cheaper rates on the backdrop of potential peace

In addition to the possible reopening of the port, freight rates could continue to fall. As of Feb. 13, freight costs from Ukraine to Egypt were $13/mt, down from $30/mt in late 2022.

Insurance costs may also decline as traders are currently insuring cargoes only after they pass the Bosporus Strait, where rates are lower than in the Black Sea, a corn trader said. Initially, the additional war risk premium (AWRP) was about 0.75% of a vessel's value, but it now ranges from 0.9% to 1.6%, depending on the insurer.

"The insurance premiums are likely to fluctuate if the conflict de-escalates; however, significant adjustments in premiums will require more than just the anticipation of a potential resolution by Trump," a freight analyst added.

Peace could open new and strengthen existing markets for Ukrainian grain, which have been limited due to the conflict. A sunflower oil trader noted, "The absence of the military risk would allow us to expand to a wider range of end markets, reaching regions that were previously too expensive or too risky to access."

Before Ukraine can increase exports, the country's recovery faces significant challenges due to the loss of 32% of arable land in Dnipro, Zaporizhzhia, Kherson, and Donetsk. Once rich in wheat, corn, and sunflower production, these regions are now contaminated, mined, and unharvestable.

Corn production has decreased by 17.1 million mt since 2021, with current estimates for the marketing year 2024-25 at 25 million mt. Wheat and sunflower seed production fell by 10.6 million mt and 4.5 million mt, respectively over the same period. Interestingly, sunflower oil production increased by 1.2 million mt from 2021 to 2024-25, as more seeds were converted to oil, driven by the higher profitability and easier transport of sunflower oil compared to grains, one analyst said.

Consequently, Ukraine's exports have dropped by 5 million mt for corn and 3.2 million mt for wheat from the 2021-2022 season to 2024–2025 season. Meanwhile, sunflower oil exports surged by 1 million mt, while sunflower seed exports decreased by 1.4 million mt during the same period.

A shift in dynamics for FOB vs CIF trades

The potential reduction in insurance and freight risks due to the elimination of war risk is likely to favor the FOB trade basis over the Cost, Insurance, and Freight (CIF) basis. CIF trades surged after the war began, as importers became hesitant to buy on an FOB basis. A seller in Kyiv said, "After the invasion, fewer buyers were willing to purchase on a FOB basis," leading CIF trades to account for over 90% of Ukraine's exports, compared to about 30% before the conflict.

Now, as Ukraine exports through its own corridor, many exporters, especially smaller ones, are starting to trade on an FOB basis. Major buyers are also placing bids on FOB to take advantage of lower freight costs, although CIF still dominates with a 75% share of exports.

Traders expect a possible return to a more balanced FOB-CIF split, potentially reaching a 50-50 distribution, driven by demand rather than trade barriers. A key factor in this shift could be the reopening of Ukraine's Mykolaiv port.

Nevertheless, the end of the war could mark a turning point, helping Ukraine regain some of its agricultural capacity and re-establish its role in global food markets. This would have broader implications not only for Ukraine's economy but for global food security as well, particularly in regions that have become increasingly reliant on Ukrainian exports.

Platts assessed sunflower oil FOB Black Sea Ukraine at $1,121/mt, Ukraine corn FOB POC at $227/mt and Ukraine wheat 11.5% at $238/mt for March-loading on Feb. 12.