Ukraine Prepping to Ship Into Black Sea

OMAHA (DTN) -- The prospects of Ukraine moving ag commodities through Black Sea ports appeared more positive Friday as Ukrainian President Volodymyr Zelensky visited a pivotal port in Odesa and a major insurance underwriter agreed to cover ships moving grain out of Ukrainian ports.

UPDATE: Various news sources reported Monday the first ship carrying Ukrainian grain set off from the port of Odesa. The Sierra Leone-flagged cargo ship Razoni left Odesa for Lebanon, Turkey's defense ministry said. A statement from the United Nations said the Razoni was carrying over 26,000 metric tons of corn. See Dow Jones story "1st Ukraine Grain Shipment Departs" in DTN Ag News.

According to multiple news reports, Zelensky toured the Choronmorsk port in Odesa, the largest port for grain capacity, where at least some ships have been sitting loaded with grain since the war began in late February.

The grain deal signed last week in Turkey requires ships to be monitored by a joint coordination center including Ukrainian, Russian and United Nations officials. No attacks are allowed on the ships and the Russian Navy is not allowed to escort ships. Russian representatives also are not allowed at the Ukrainian ports.

"If the ports are open, countries will get the food they need and a lot of people will manage to survive and it will help political stability for the countries that depend on our food," said Roman Grynshyn, a Ukrainian agricultural tour guide who has been traveling the U.S. to advocate for rebuilding destroyed Ukrainian farms.

SKEPTICISM CONTINUES

Grynshyn, who was leaving the U.S. to return to Europe, said on a livestream discussion Friday he remains skeptical of Russia upholding the deal. He pointed to Russians launching missiles at Odesa less than a day after signing the U.N.-brokered deal. Grynshyn noted Russia has developed its own market by taking Ukrainian grain and reselling it.

"They don't want the treaty to start working because they want the opportunity to blackmail the world and sell this grain themselves," Grynshyn said, adding, "They by no means want this grain to go to the market through the Ukrainian ports. They want to sell it themselves. So let us see if it is going to work or not."

If Ukraine can start moving grain it will help free the 20 million metric tons (mmt) trapped from last harvest and free up space for wheat harvest going on now, as well as crops this fall. It would also help re-stabilize Ukraine's economy -- not exactly a Russian goal.

"If the exports start working through these three ports, we will be able to reload our agricultural industry and that will help Ukrainian currency and the Ukrainian economy greatly," Grynshyn said.

INSURANCE RISK

Since the deal was brokered last week, there have been questions about issues such as insurance for ships. Official statements out of Ukraine earlier this week touched on this issue. Also highlighting those challenges was Juan Luciano, CEO of ADM, on a quarterly report call Tuesday.

"There are also issues about insurance and financial institutions guaranteeing some of these large transactions," Luciano said.

On Friday, Ascot and Marsh, an arm of Lloyd's of London agreed to provide up to $50 million in insurance to cover marine cargo in the region.

"The recovery of these grain supplies is vital to addressing global food insecurity and market uncertainty at this difficult time," said Patrick Tiernan, chief of markets at Lloyd's, in a statement. "The facility announced by our market today is of paramount importance. It will add essential protections to the deal brokered by the UN last week and represents the latest support from Lloyd's and the insurance industry to help the international community respond to the conflict."

MARKETS WATCH

For U.S. farmers, the movement of wheat out of Ukraine could trigger some market volatility. Futures prices dropped about 40 cents last week after the deal was announced, but prices inched back up. DTN Senior Analyst Todd Hultman said price volatility won't be as dramatic as it may have been over the past few months because a lot of the noncommercial trade has gotten out of the wheat market.

"The sharp sell-off in wheat prices that took place from mid-May to mid-July coincided with a massive liquidation of long positions held by speculators in the market and was first triggered by Russia's proposal to allow grain shipments to safely leave Ukraine," Hultman said. "Later, increased concerns about rising interest rates, a higher dollar and the possibility of recession added to liquidation pressures, taking over $5 off the prices of all three U.S. wheats."

Hultman added, "The result is that speculative positions in the long side of Minneapolis wheat are now at the lowest levels since the pandemic of 2020. In KC and Chicago wheat, spec long positions are at their lowest level in seven years. With specs largely washed out of the wheat market, a big source of bearish ammo has been spent and prices are now less inclined to panic at outside market events. In the weeks and months ahead, prices are apt to show more respect for USDA's estimate that world ending wheat stocks, apart from China, are at their lowest levels in 14 years."

EXPECT SLOW MOVEMENT OF GRAIN

Ukraine has an estimated 20 mmt of grain trapped in the country. ADM's Luciano added he expects exports will "trickle down" in the beginning of the deal, but then increase once some confidence builds that each country is holding up its end of the bargain.

"There are issues in the country about getting fuel for that. There are issues in the country about getting the crews to man this boat," he said.

Luciano added the importance of getting Ukrainian grain and oilseed into world markets.

"At this point in time, the world needs access to those inventories. So this is an important thing," he said. "If we don't have access to those inventories and they are not clear from the storage next year, we may have an availability issue for food because we will lose part of the crop. Ukrainians apparently have done a very good job of planting about 70% of all the capacity -- all the area -- and they are harvesting right now the wheat."

Chris Clayton can be reached at Chris.Clayton@dtn.com

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