Small-time operators in Ukraine are combining resources and exporting sunflower oil to nearby countries from little-known river ports, transacting mostly in cash as the war stretches to its sixth month, Dinesh Kumar, a vegetable oil trader at DeltaWilmar told S&P Global Commodity Insights.
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"Entrepreneurs, who sometimes are also owners of minor crushing plants, are forming networks and hiring barges with 2,000 mt-6,000 mt capacities. They take the oil to Turkey and sell at whatever price they can get and use that money to buy seeds from farmers again," Kumar, a Ukrainian citizen of Indian origin currently living in Odesa said.
As these operators are not international companies, they do not have to worry about insurance or waste money on quality checks, Kumar said. "You buy seeds from the farmer in cash, you take it to the crusher and pay partly in cash. And this cash economy saves about 20% in value added taxes."
Exports of sunflower oil from Ukraine -- the world's largest producer and exporter of the commodity -- have been reduced to a trickle since Feb. 24, as the war blocked off the country's major ports in the Black Sea region.
Trade restarts at Odesa
A safe transportation agreement between Russia and Ukraine struck on July 22 along with Turkey has allowed for passage through three of Ukraine's major ports -- Chernomorsk, Yuzhne, and Odesa.
While the safe passage treaty was hardly a "game changer" for sunflower oil exports, trade has slowly restarted at the Odesa port in the last week of August, Kumar said.
Vessels with capacity of up to 40,000 mt are now docking and loading at the Odesa port with shipments headed for India and China -- the two largest vegetable oil buyers in the world.
"Some of the authorities I have spoken to are more pessimistic than optimistic [that the safe passage agreement will ease transit issues]. All the leading [vegetable oil] players are focusing on handling the stock in the Odesa region," Kumar said.
During the five-and-a-half months of Russia's war against Ukraine, sunflower oil exports fell to around 935,700 mt, 48% less than the same period in 2021, the Ministry of Agrarian Policy and Food of Ukraine said Aug. 23.
Much of Ukraine's sunflower oil trade is currently flowing across inland ports on the River Danube close to the country's border with Romania in the south while some shipments are being sent through land routes at its western border, S&P Global reported earlier.
"We are sending to Romania, Bulgaria, and have now started transporting to Trieste port in Italy by railway as Romanian ports have become very busy," Kumar said.
To send sunflower oil in flexibags to Italy, the cargo is loaded on to railways till Romania and then transferred to another railway as Ukraine and the EU have different rail systems.
"All this is taking a lot of time, and everything is delayed. Before, logistics would cost me $100/mt but now it has become $287/mt for the same port delivery," Kumar said, adding that now transit time from a factory in Ukraine to a European port has increased to nearly 60 days from 15 days before.
Before the war, over 96% of Ukraine's sunflower oil trade would be routed through seaports, Ukraine-based agricultural information agency APK-Inform said in July.
While sunflower oil accounts for a relatively small 9% of the world's vegetable oil consumption, its share of the global vegetable oil trade is similar to soybean oil at 14%.
In the first half of the year, uncertainty regarding export prospects for sunflower products out of the Black Sea region pushed an already-tight global vegetable oil market into a tailspin with futures contracts and physical prices of palm, soybean, sunflower, and rapeseed -- the four most traded vegetable oils -- recording all-time highs.
Outlook steady but tense
Ukraine's sunflower seed production for marketing year 2021-22 (September – August) is expected to be around 17.5 million mt, the US Foreign Agricultural Service said in its last report on global oilseed and vegetable oil markets Aug. 12 -- remarkably unchanged from its pre-war production forecast in February.
FAS has cut its outlook on Ukraine's sunflower oil production for MY 2021-22 to 4.5 million mt in August from its pre-war estimate of 7.29 million mt.
"Full year production [of sunflower seed] will not be hurt but in the Eastern parts of Ukraine some factories have been destroyed or occupied by Russia. So now seeds from the Eastern part will come to the Central or Western part because no one is understanding what is going on and when the war will stop," Kumar told S&P Global.
However, production estimates for the next marketing year have seen sharp cuts among trade sources.
FAS estimates MY 2022-23 sunflower seed output to fall by 45% on the year to 9.5 million mt, while Kumar expects Ukraine's production to drop by half to about 7.9 million-8.8 million mt from 14.9 million mt in 2021-22.
New season sunflower oil will be available from the start of October. The old crop end stocks are still available, and seed price continues to increase, reaching Hryvnia 14,000/mt-16,000/mt ($378.81-$432.92), Kumar said in a note Aug. 19.