Black Sea Watch: Market strength wanes as Ukrainian grain flows halve in May

Black Sea grain market weakened in May in both freight prices and volumes amid uncertainty regarding the prospects of the UN-brokered safe passage agreement, with participants remaining hesitant to plan ahead even after the announcement of the agreement's extension.

"Basically, we've been on hold since March," a charterer said. "The corridor cannot function effectively with only a two-month perspective. We fixed two vessels during the last corridor, but neither of them was able to pass."

The same charterer said they doubted much would be accomplished, as Ukraine does not have much stock left to export and crop conditions have not been favorable. With the corridor deal due to end on July 18 the charterer expected they would not able to trade the new crops.

In the Black Sea region, daily hire offers from owners for shipments via Ukrainian ports were reported around $15k/d for Handysize ships, while offers for non-Ukrainian ports were seen around the $8,000s/day.

"Currently, there is no demand for Handysize vessels in Ukraine, but we observe some business activity for Panamax and potentially Supramax vessels," a Geneva-based shipbroker said. "It's pretty slow for smaller vessel sizes."

The UN-brokered Black Sea Grain Initiative signed July 2022 by Russia, Ukraine and Turkey, and renewed for a third time in May for another two months, enabled the resumption of exports of grains from the three key Ukrainian ports of Chornomorsk, Odesa and Yuzhny/Pivdennyi on the Black Sea, with cumulative grain shipments under the safe passage deal surpassing 30.6 million mt as of June 1, data from the Initiative's Joint Coordination Centre showed.

Still, the aftermath of the May corridor extension brought no further market optimism, as JCC approvals for shipments to load from the port of Pivdennyi remained unobtained. Direct interference from Russia was alleged, with the primary cause identified as the continued blockage of a Russian ammonia pipeline near Pivdennyi, according to market sources

Spot freight rates have remained stagnant, with prices stuck in the high $20s/mt for deliveries to the East Mediterranean and in the low $30s/mt for voyages to the Spanish Mediterranean.

Platts, part of S&P Global Commodity Insights, last assessed the 25,000 mt Northwest Black Sea-Alexandria grains route at $27.75/mt on May 31, reflecting an 18% increase since the start of May.

With Ukrainian grain flows standing just above 1.3 million mt in May, 53% lower on the month, the average seaborne cargo size also appeared to be stalling below the peaks seen in previous months.

Still, some recovery might be taking place, with the average cargo size last observed at nearly 44,500 mt during the May 22-28 period, up 50% on the week.

Grain prices slide

The Black Sea wheat market was bearish in May, as the Russian FOB wheat market dropped $45 from the start of the month for June-July deliveries. The lowest offer for the 12.5% protein quality on May 31 was heard at $225/mt from the ports of Novorossiisk and Kavkaz, dropping $5 from the previous day.

Export prices for Russian wheat continued to fall ahead of the new-crop harvest in July and an already large stock from the 2022 harvest amid weak demand from buyers.

"The market is still going down," a trader of Russian wheat said.

Many in the market have questioned the Russian government's ability to apply the price floors at $275/mt in the first half of April and at $260/mt in May that had stifled trade. A second trader said that the ministry is likely to delay exports or ensure penalties if low trades below the price floors are seen.

"Sellers want to see buyers, and buyers think prices can go lower," a fifth source said.

Similar falls were seen in the CVB basis Constanta wheat market. The 11.5% protein wheat declined $5 from the previous day to $234/mt on May 31, down $27.5/mt from the start of the month.

The Ukraine wheat and corn market also weakened in May amid low corridor inspection rates, long waiting times and additional demurrage costs. The FOB wheat market fell $50/mt in May, while the POC FOB Ukraine corn declined $15/mt after staying stagnant for most of April.

Meanwhile, the lowest corn offer value stood at $210/mt for June on May 31.

"The corn FOB (Ukraine) market is non-existent," a Ukraine-based market participant said, adding that there were no bids above $200/mt.

A seventh source said that the waiting time for an inbound ship wishing to load from Ukraine was currently three to four weeks, and the outbound queue was one to two weeks.

The CVB corn market fell almost $25 in May to $226/mt on May 31 for June-July deliveries, as the market tried to compete with POC Ukraine origin.

The price of Black Sea sunflower oil fell steeply from the start of May, with the FOB Black Sea Ukraine product falling $89 from May 2, as a combination of difficult shipping conditions and waning demand from the EU and Turkey pressured offer prices from crush plants in Western Ukraine.

Uncertainty regarding the Black Sea Grain Initiative extension signed May 18 caused a market lull during the first half of the month, as the viability of sunflower oil purchases for July-loading came into question. Prices remained resilient, as expensive seed and a lack of transport cost visibility for Chornomorsk pressured crush margins led to fewer offers amid widespread pauses in crushing operations.

The uncertainty caused buyers to retreat from Ukrainian shipments, with trades for Russian origin product on a CIF Turkey basis reflecting an increased appetite for more secure transportation routes.

Bearish pressure continued to mount due to reductions in oilseed prices and collapse in European rapeseed oil values to two-year lows, resulting in sunflower oil FOB Black Sea Ukraine falling $60/mt from May 19 to $700/mt on May 31 -- the lowest price since May 7, 2020.