Russian grain exporters are facing a significant challenge due to a lack of ships and a decreased demand for their crops from Western grain traders. This situation arises after President Vladimir Putin revoked the Black Sea Grain Initiative last month and committed to replacing Ukrainian grain with Russian shipments to Africa. However, there seems to be relative disinterest from Western traders in Russian grain, which Russia’s Union of Grain Exporters attributes to “hidden sanctions.” This lack of demand may result in increased freight and insurance costs for Russia, ultimately affecting the price level of wheat and other grains on the world market.
It is worth noting that NATO allies have excluded Russian agriculture exports from sanctions imposed on Russia following its invasion of Ukraine in February 2022. Despite this exclusion, trading with Russia still presents considerable financial and security risks, which are further compounded by the collapse of the Black Sea corridor. These risks continue to drive up freight costs for Russian shipping operators. Additionally, unresolved quarrels and recent escalations in the Russia-Ukraine war could further contribute to higher global wheat prices.
Global commodity houses such as Cargill, Louis Dreyfus, and Viterra have already ceased trading Russian grain since July 1, putting more pressure on Putin and his associates. Russia’s agriculture ministry forecasts an approximate 8% decline in grain exports this fiscal year compared to 2022/23. Experts estimate that Russian wheat exports could fall to 45 million tonnes, aligning with estimates from the International Grains Council.
The challenges faced by Russian grain exporters stem from the reluctance of international companies to engage in trade with Russia. Most of the grain leaving the country is dealt with by Russian traders using “shadow” fleet ships operated by China and other nations, which international traders are unwilling to approach. In an attempt to address this issue, Russia has requested 257 ship operators to assist with their grain transportation, a 40% increase from June. However, it is unclear how many of these requests have been fulfilled.
In response to the difficulties in shipping grain, Russia’s agriculture ministry announced a plan to build 61 new grain ships. They highlighted the need for 34 grain ships with a carrying capacity of 60,000 tonnes and 27 with a capacity of 40,000 tonnes. However, there have been no reported orders for these ships from Russian companies, either domestically or internationally.
The situation in the Black Sea corridor continues to escalate, with Russia and Ukraine warning that ships destined for each other’s ports may be treated as legitimate military targets. This conflict has already led to Ukraine using naval drones to attack a Russian oil tanker and a warship at the Novorossiysk naval base, situated next to a significant grain and oil port. Given that Russia’s Black Sea terminals handle over two-thirds of its grain exports, including ports in Novorossiysk and Taman, this further complicates the shipping process for Russian grain exporters.
In summary, Russian grain exporters find themselves in a challenging position as they lack ships and face decreased demand from Western grain traders. The collapse of the Black Sea corridor and the reluctance of international companies to engage in trade with Russia have further exacerbated the situation. The outlook for Russian grain exports remains uncertain, with potential implications for freight costs, grain prices, and the country’s overall agricultural industry.