Ukraine's Grain Challenges Mount

OMAHA (DTN) -- Grain markets settled down Thursday following a 50-cent jump in futures prices for wheat on Wednesday as Russia and Ukraine each made it clear grain ships likely won't be getting grain from Ukrainian ports anytime soon.

Russia continues to strike grain infrastructure around key ports in Ukraine such as Odesa and Mykolaiv.

The White House now has warned that Russia appears to be adding more mines to areas around Ukrainian ports.

"We believe that this is a coordinated effort to justify any attacks against civilian ships in the Black Sea and lay blame on Ukraine for these attacks," White House National Security spokesman Adam Hodge stated.

Joe Glauber, a former USDA chief economist and now a senior research fellow for markets and trade at the International Food Policy Research Institute, said Russia's attacks will make it more difficult for Ukrainian farmers to financially pencil out production if they can't get grain out of the major ports.

"It speaks to the fact that Ukraine is going to continue to be a diminished agricultural supply presumably for as long as this war is going on," Glauber said.

Glauber agreed all of this is going to be borne by Ukraine's producers who will see their basis continue to widen because they cannot pass off those transportation costs. Glauber equated it to the U.S. having to export its soybeans through the St. Lawrence River. "You might be able to get some of it out, but you can't get the volumes that you normally would be exporting every year."

DTN Lead Analyst Todd Hultman noted the port attacks provided some initial shock for grain traders as the market had become almost numb to war news before the port attacks. Now, with threats against ships, that is also going to force cargo ships to go elsewhere for commodities.

"The Black Seas is definitely out of commission right now because no insurer is going to cover them," Hultman said.

While the September futures price for wheat is up more than 90 cents from a week ago, that has been more of a response for speculators in the market than helping U.S. farmers with their own basis prices.

The reaction to Ukraine has helped wheat producers in drought-stricken areas such as Kansas with delivery prices in the middle of harvest affected by drought in the state. The KCBT hard red winter contract has moved up from $8.01 a bushel on July 13 to just under $8.75 a bushel on Thursday. Red winter wheat prices at Kansas grain elevators on Thursday are offering bids of $8.25 a bushel to $8.70 depending on location and the company.

For the Ukrainian market, Glauber said there had been some "wishful thinking" from some in the grain trade that the Turkish Navy would escort ships or provide more risk insurance even without Russia as part of the agreement. "I think the attacks on Odesa put an end to that yesterday."

SHIFTING TO GRAIN INFRASTRUCTURE

Roman Grynyshyn, a former agricultural tour guide who spoke to DTN from Kyiv, Ukraine, on Thursday, noted Russian drone and missile attacks have quickly shifted from energy to grain infrastructure. Grynyshyn said one port strike in Odesa destroyed about 60,000 metric tons of grain.

"They have turned their focus to agricultural trade, which is the railroads, the terminals, the elevators and ports," Grynyshyn said. "It looks like the damages have been very serious. Unfortunately, the damages on the ports, from their (Russia's) standpoint is going to be more effective."

These strikes are happening as Ukrainian farmers are trying to harvest winter wheat, barley and some canola. So far, Ukrainian farmers have harvested about 2 million metric tons of their winter crops, Grynyshyn said.

For a lot of producers, it will become cost-prohibitive for them to try to move their grain right now, Grynyshyn said. The damage to the rail infrastructure could add more than $50 a ton to their shipping costs.

While the grain trade would like to see tensions de-escalate and re-establish the Black Sea ports, Grynyshyn also noted a lot of civilians and officials did not like the appearance that the Black Sea Initiative created that there was room for peaceful negotiations between Ukraine and Russia.

"We understand the grain deal was for the producers, but it's also in the interest of the huge grain-trading corporations and it was in Russia's interests. This was one of the instruments Russia was using to force us to use this platform for negotiations, which is what they want," Grynyshyn said. "We will not agree to give away any acreage of our land to the Russians for peace. Most of the people deny any contact with Russia except on the battlefields until we get our land back."

A top European Union diplomat said EU countries will have to increase access to more Ukrainian grain. He also called Russia's attacks on the grain storage a "barbarian attitude" by Russia's military.

"What we already know is this is going to create a huge food crisis in the world," said Josep Borrell, the EU's top leader for Foreign Affairs and Foreign Policy.

EU WILL NEED TO DO MORE

With the Black Sea closed, Borrell told reporters in Brussels that European ports will have to increase capacity, and Ukraine's neighbors will have to do more to open their borders to Ukraine's grain as well. "We have done a lot. We will have to do more."

The Black Sea deal allowed Ukraine to export 32.7 million metric tons (mmt) of grain to 45 countries. Corn has made up more than half of those exports, and wheat takes up 27% of the volume. Sunflower meal and sunflower oil make up another 11% of the volume.

"We're going to continue to support Ukraine's effort to get Ukrainian grain to the markets that desperately need it," said Karine Jean-Pierre, the White House press secretary. She also applauded efforts by neighboring countries such as Romania to allow more overland access to Ukrainian grain.

Jean-Pierre also pointed to USAID's efforts to provide $250 million more in aid to Ukrainian farmers to buy seeds and fertilizer, as well as help with crop storage.

UNCLEAR ON RUSSIA EXPORTS

While USDA forecasts Russia's wheat exports at 47 mmt, Glauber said it's more unclear because Russia is not reporting its export numbers to the United Nations. Glauber has been trying to track how much importers are reporting from Russia compared to 2021.

"The complaint from Russia is they have not been able to use their banking system for their export credit or export loans, and they say it should be exempt from sanctions for agricultural purposes," Glauber said.

The United Nations had proposed to remove some of those financial restrictions before Russia cut off the deal on Monday and began launching its attacks on the port infrastructure.

Russia also has complained about an ammonia fertilizer pipeline that also has been damaged and unusable but was still cut off from export terminals even before that occurred.

Also see "USAID Chief Criticizes Russia for Halting Grain Deal, Announces Aid to Ukrainian Farmers" here: https://www.dtnpf.com/….

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

Follow him on Twitter @ChrisClaytonDTN

(c) Copyright 2023 DTN, LLC. All rights reserved.