June 14, 2024

War logistics destroys the world grain market; Leading the victims…

5 min read
War logistics destroys the world grain market;  Leading the victims...

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The global grain market is now focusing all eyes – and fears – on the logistics of war. A potential sea lane “allowed” by Russia for the flow of Ukrainian agricultural products and products is the headline when it comes to this nearly 100-day conflict, with prices once again subject to a series of known mismatches. In this Tuesday trading session alone (31), the Chicago-traded wheat futures contract lost more than 6%, followed by a decline of more than 3% in corn and soybeans.

Although the chances of the corridor becoming effective are strong and proved more plausible this week, when the President of Turkey, Recep Tayyip Erdogan, Russia, Vladimir Putin spoke on the phone, logistics experts and representatives of the United Nations (UN). ) Those working to open this drainage channel warn of more serious consequences from the Russian blockade of Ukrainian ports. Turkey is one of the countries that depends on food imports from the countries of the region.

One of Russia’s first actions was to prevent the establishment of Ukrainian ports on the Black Sea, which borders not only Ukraine, but also Russia, Georgia, Turkey, Bulgaria and Romania. Since that event, global supply, supply and distribution chains for corn, wheat, sunflower oil and more grains and fertilizers have been compromised and disorganized, driving up prices. Likewise, it has increased logistical costs around the world, because it has reduced route alternatives, and insurance values ​​for ships that will cover those areas, among other scenarios of insecurity.

“The European Union wants to reduce the bureaucracy on its borders and Turkey wants to create a military exclusion zone so that insurance companies can once again provide service to ship owners in loading grain in Ukrainian ports. It is about logistics. The border with Europe seems impassable for trucks coming from Ukraine, Romania is not keeping up with the volume of grain that has to be moved from wagons to barges and then transferred to ships and insurers do not want to cover mine and missile risks,” explains market analyst Eduardo Fanin, of Agrinvest Commodities.

Mariupol port
Loading of Ukrainian grain destined for Turkey in the port of Mariupol, Ukraine before the war
Photo: Christopher Okekone/Bloomberg

In addition to Turkey, Lithuania also helps with negotiations and mediation. According to Deutsche Welle International, Lithuanian Foreign Minister Gabrielius Landsbergis has proposed forming a “coalition of the will,” with a naval mission to protect Ukrainian ships from Russian missiles as they pass through the Black Sea. In his statements on this issue, the minister clarified that NATO (the North Atlantic Treaty Organization) would not take part in such a task, since its role could leave far away the biased solution to Moscow.

“In this endeavor, military ships or aircraft – or both – will be used to ensure that grain supplies can safely leave Odessa and reach the Bosphorus without Russian interference. We will need a coalition of willing nations – with a large naval force to protect shipping,” Landsbergis told Britain’s Guardian newspaper. Last week: “The corridors and countries affected by them. This will be a non-military humanitarian mission and cannot be compared to a no-fly zone.”

The Lithuanian official added that “the alternatives to the port of Odessa simply do not exist for shipping the quantities of grain that have accumulated in Ukraine and will accumulate during the summer.”

Odessa port
Grain and oil silos in the port of Odessa, Ukraine – Photo: Christopher Okekone/Bloomberg

As the talks began to focus more firmly on the issue of food security, more countries finally got involved and took a stand. After all, according to preliminary calculations by the United Nations, there are about 45 million hungry people in the world, a situation that is getting worse with each new day of the war between Russia and Ukraine.

Vanin asks: “Only 50 countries depend on Ukrainian grain. Will this rhetoric affect Vladimir Putin?”

According to information collected by the international news agency Bloomberg, there are nearly 20 million tons of Ukrainian grain with shipments delayed from last season since the ports were closed. The country’s most recent export figures reflect this scenario, with volumes far from those recorded in previous years. Until the local economy is not further penetrated and the volume of food – or the raw materials for which it is produced – is further limited across the planet, professionals from all fields continue to search for alternatives.

Constanta ميناء port
Constana Port, Romania – Photo: Andrei Pungovschi / Bloomberg

The Ambassador of Ukraine in Warsaw expects Poland to be a conduit for 80% of Ukraine’s grain. Romania also emerges as an alternative, however, it was not able to handle everything that might need to be transported overland. Recent photos show lines of trucks on the border between Ukraine and Romania. The cost of trips on this route triples and takes several days longer than usual due to the greater flow and congestion. Slovakia is another option, but also with limited capacity.

Truck line on Ukraine’s Isakia Orlivka border with Romania – Photo: Andrei Pongovci/Bloomberg

Currently, Ukraine plays an important role in food security, and so does Russia, but on a slightly different level. About three quarters of Ukraine’s grain production is exported. On normal days, the Black Sea ports ship from five to six million tons of this grain per month. And at the end of this season, despite all the problems the producers are facing – some were even killed in the field work – the Ukrainian Minister of Agriculture predicted,
Mykola Solsky, is that a volume of 30-40 million tons needs to be exported.

“While the grain can be stored, farmers need to sell it to raise money to buy inputs from planting in 2023, with winter crops like wheat in just a few months,” Bloomberg experts explain.

However, according to experts, the problem is just beginning, the resumption of normal life will still take a long time and the structures, in addition to being banned, will be endangered and destroyed by Russian attacks. The search for solutions continues, but their effectiveness is as scarce as the food supply has become, especially for the most vulnerable countries.

Figures from the International Grains Council (IGC) show that Ukraine’s grain exports in the 2020/21 season were 45 million tons; in 2019/20 from 55 million and in 2018/19 from 50 million.

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Grain shipments from Ukraine and the European Union – Source: IGC

The cumulative rises only in the wheat futures contracts traded on the Chicago Stock Exchange, for example, rose from 50% from the beginning of January to May 27, 2022. Although the market already came with a strong scenario for the fundamentals before the start of the war between Ukraine and Russia, the beginning was Effective conflict is the missing spark for this market to explode and reach historically high prices. And the movement occurred not only on the Chicago Stock Exchange, but on other international exchanges the price movement was similar.

After a sharp rise at the beginning of the month, with news of curbing grain exports by India, prices last week tested steep falls in Chicago in a profit-taking correction in the face of the prospect of opening a corridor to Ukrainian exports. However, the lack of confirmation of upcoming actions and accusations between the two countries, which creates a real war of misinformation makes the market even more tense.

The ups and downs are not over yet. And even more uncertainty.

With information from Deutsche Welle and Bloomberg

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