Black Sea Watch: Ukrainian grain flows recover following safe passage agreement renewal

Ukrainian grain shipments through the Black Sea jumped during the period Nov. 14-20 as the UN-brokered safe passage agreement was eventually renewed for another four months starting Nov. 19, despite lingering uncertainty over whether the negotiations would be successful.

The UN-brokered Black Sea Grain Initiative, signed July 22 by Russia, Ukraine and Turkey, enabled the resumption of exports of grains and other foodstuffs from the three key Ukrainian ports of Chornomorsk, Odesa and Yuzhny/Pivdennyi on the Black Sea.

According to a S&P Global Commodity Insights analysis of the latest data from the United Nations' Black Sea Grain Initiative Joint Coordination Centre, Ukrainian grain flows during the period Nov. 14-20 nearly doubled on the week to reach 993,834 mt, marking the fifth strongest weekly performance since shipments began earlier in August.

That took cumulative grain shipments under the safe passage deal to more than 11.587 million mt.

Shipments had fallen during the first two weeks of November to barely over 500,000 mt per week, as traders and vessel operators hesitated to assume the risk of navigating the Black Sea.

Previously, Russia suspended its participation in the agreement in late October but subsequently backtracked, with uncertainty persisting regarding the Nov. 19 renewal deadline until an official confirmation was released Nov. 17.

Further optimism can be traced in the growing shipment size, with the average grain cargo during the period Nov. 14-20 above 32,000 mt, up 28% on the week, marking the second largest weekly average since early August, according to JCC data.

The largest cargo during the week ended Nov. 20 was a shipment of 66,756 mt of corn departed from the terminals of Yuzhny/Pivdennyi Nov. 16, carried onboard the 2005-built, 76,619 dwt MIM VANGELIS JR.

Notably, the JCC said late Nov. 20 that "there are currently 105 vessels in Turkish territorial waters waiting to move. Out of those 105, 75 are waiting to move – following inspection – into Ukrainian ports with the capacity to export approximately 1.7 million mt of grain and other food products. Some of those vessels have been waiting for over a month," with the rest of the vessels already loaded with cargo and awaiting outbound inspection.

With congestion issues appearing to make a return, the JCC said delegations were discussing ways to increase the number of successful inspections conducted with three joint inspection teams planned to be deployed Nov. 21 to conduct a total of 12 inspections, five on inbound vessels and seven on outbound.

In terms of cargo types, wheat shipments dominated exports again during the period Nov. 14-20, accounting for over 38% of total shipments, with corn accounting for 28%. The remaining cargoes included sunflower products, rapeseed, barley, as well as other grains, according to JCC data.

The proportion of shipments destined for high-income regions increased further to over 51% during the week ended Nov. 20, while less than 7% was destined for low-income countries, with the rest heading to mid-income destinations.

As for regional destinations, Europe & Central Asia attracted almost 46% of the cargoes in the week with almost 37% heading to East Asia & Pacific, and an additional 12% destined for the Middle East & North Africa. The remaining volumes shipped to South Asia and Sub-Saharan Africa, JCC data showed.

Fertilizers in focus

Higher natural gas prices in Europe, a key input to fertilizer production, as well as potential disruptions in the Russian fertilizer supply chain following the outbreak of the Russia-Ukraine war earlier in February, have triggered concerns regarding an emerging fertilizer supply-demand imbalance.

With next year's harvests at stake, global agriculture market stakeholders are focusing on ways to boost supply, while Russian officials have been criticizing the impact of Western sanctions on Russia's agricultural complex.

"The renewal of the Black Sea Grain Initiative is good news for global food security and for the developing world," said Rebeca Grynspan, Secretary-General of the UN Conference on Trade and Development (UNCTAD) on Twitter Nov. 17, stressing that "solving the fertilizer crunch must come next."

The issue of reconnecting of the Russian bank Rosselkhozbank, a key entity enabling transactions with the country's agricultural and fertilizer producers, to the SWIFT international messaging network appears to remain at the top of the Russian agenda, according to local media, both during Russia's return to the Black Sea Grain Initiative following its suspension of participation in late October, as well as during the negotiations for the renewal of the deal.

Previously, dry bulk market participants have expressed doubts as to whether the Black Sea Grain Initiative could provide enough support to easing freight rates, but that could change if trade flows pick up on the back of a renewed deal, with potentially additional growth in fertilizer exports from the region.

The Platts KMAX 9 Index, a weighted average of time charter equivalent rates on key Kamsarmax routes assessed by Platts, last stood at $13,097/d Nov. 18, well below the $20,678/d average for 2022 to date, and more than 22% below the 2021 full-year average, S&P Global data showed.

Platts is part of S&P Global.