Russia's invasion of Ukraine on Feb. 24 has significantly disrupted the Ukrainian sunflower oil industry and supply chain, with Ukraine the top exporter of sunflower oil globally. A prolonged conflict also threatens the next growing season, sources said.
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Russia's invasion caused commodity prices across oil, gas, and agricultural markets to spike as attacks on cities, ports, and infrastructure sent shockwaves through supply chains. This led S&P Global Commodity Insights to suspend price assessments of Black Sea sunflower oil for Feb.24 – 25, as trading had stopped.
"The market is very much stressed over the current situation – oilseed crush and the industry in Ukraine has completely stopped, there are shipment delays also," said a source Feb. 28. "If this continues for 2-3 weeks or longer, it may delay spring plantings for soybeans and sunflowers and risk the goals for average hectares for the next campaign."
SUNFLOWER SEED PRODUCTION
The invasion poses a threat of disruption on several fronts to farmers. With Russian troops having already entered the major seed producing regions of Kharkiv and Luhansk, seeds stored in those regions will be no longer accessible to export crushers. Additionally, logistical constraints threaten to hamper farmers in their access to fertilizer and other inputs, as they approach the crucial planting season.
Sunflower seeds are sown in April and May ahead of the summer season, and then harvesting typically begins in September. "There is risk for supply and demand for the next campaign when there are some tensions and military actions in agricultural areas – many roads are blocked, commercial companies are not working, farmers cannot do planting and may reduce average acreage if some areas are occupied," said a market participant.
The major growing regions for sunflower seeds in Ukraine are in the steppe and forest-steppe zones of Ukraine, located in the central and eastern provinces of the country. According to Latifundist and Ukrainian Department of Agricultural Development data, Ukraine sowed 6.5m ha in the 2020-21 marketing year (Sep. to Aug.) with sunflower seeds. The main producing regions are Dnipropetrovsk, Kirovohrad, Kharkiv, Zaporizhia, Nikolaev, Luhansk, Odessa, and Poltava, which combined account for 62% of the country's total sown area.
SUNFLOWER SEED TRANSPORTATION
The Russian invasion has also threatened the railway and road systems in Ukraine used to transport seeds from production regions to crushing facilities or export terminals.
State-rail operator Ukrzaliznytsia is prioritizing its capacity for the evacuation of citizens and industrial and commercial traffic has suffered, with steelmakers and iron ore producers also reporting disruption to their activities.
Ukrainian sunflower seed crushing plants started purchasing additional seeds around Feb. 21, but it is unclear whether any of these purchases were successfully loaded and shipped before restrictions on rail freight were introduced. Although market sources reported that crushers were largely covered for February, longer term supplies are now threatened.
As well as using the seeds for crushing and oil and meal production, Ukraine also exports sunflower seeds to major consumers such as Turkey. Ukraine was expected to export 350,000 mt of seeds this season, making around 10% of global exports, according to Platts Analytics data.
Further along the supply chain, the invasion has prevented Ukraine crushing facilities from operating. "There's no logistics, no production, farmers have stopped, no origination and no crush," said a source. "The majority of crushing plants have completely stopped."
Crushing capacity exceeds sunflower seed production within Ukraine, meaning crushers are typically competing for seeds. In 2020 for example, the total oilseed crush capacity in Ukraine was around 23 million mt, with 19 million mt dedicated to sunflower seeds, according to USDA data.
Due to being orientated around the export market, most Ukrainian crushing facilities are located close to Black Sea ports for logistical convenience, often at some considerable distance from the seed producing areas in the center and east of the country. Ukraine's sunflower oil industry is geared toward the export market, with 91% of its production destined overseas, according to USDA data. In comparison with Russia, the other major producer, Russia consumes almost 35% of its own sunflower oil production domestically. Overall, the Black Sea accounts for almost 80% of global sunflower oil exports.
The closure of key shipping ports have stopped sunflower oil being loaded onto vessels. "Ports are not working, shipments cannot be executed – there is nervousness in Rotterdam, the Black Sea and in destination markets," said a source. "Turkey are nervous to get their shipments and India are nervous."
Ukraine's Ministry of Infrastructure announced that the country's military had ordered the closure of all ports on Feb. 24. One market source reported that around 300,000 mt of Ukrainian sunflower oil were scheduled for shipments in late February and March but this most likely will not be shipped, with destination markets now requiring to substitute these volumes with vegetable oils that are available from other originations.
The major Black Sea ports for sunflower oil in Ukraine are Nikolaev, Chornomorsk, Dnipro, Odessa, Kherson and Yuzhniy located in the southwest of the country on the north coast of the Black Sea. Typically, clean product tankers, chemical tankers or even flexibag containers for smaller buyers can be utilized to ship sunflower oil to major export destinations including India, the EU, China, the Middle East, and North Africa, while seeds can be exported via dry-bulk vessels.