Ukraine's corn exporters hope for acceleration in ship inspections in 2023

Corn importers in Europe and North Africa start 2023 hoping for an acceleration in exports from Ukraine under the Black Sea Grain Initiative, but the prospects of a significant pick-up are in doubt amid accusations that Russia is deliberately slowing shipments.

January and February are typically two of the busiest months for Ukraine's corn exporters, as they rush to ship grain harvested in autumn, but they are now being held back by the speed at which ships can be approved to sail to and from Ukraine's deepsea ports.

"I have the impression that [Russia] uses any excuse possible to slow down the [inspection] process," said one trader of Ukraine grain, referring to the most controversial procedures of the Black Sea Grain Initiative.

Since August, the UN-brokered deal has guaranteed the safety of commercial ships visiting the ports of Odessa, Chornomorsk and Pivdennyi. It requires every ship to be inspected by a team composed of representatives from Turkey, Russia, Ukraine, and the UN.

A Ukrainian government official said Jan. 4 that its priority is to accelerate the pace of these inspections. The Russian foreign ministry did not reply to a request for comment.

As of Jan. 3, there were just three teams operating. Each team can perform two or three inspections a day, and every ship must be inspected twice: once before arrival and once before departure.

Another potential headache for ship owners is the suspension of war risk cover in Ukraine and Russia from Jan. 1 for some liabilities by some Protection and Indemnity Clubs. The impact of that move wasn't clear at the time of publication. One shipping source said that some ship owners had rushed to get their ships out of Ukrainian waters in the final days of 2022, although ships continued to sail after Jan. 1.

The closure of Ukraine's deepsea ports between March and July following Russia's invasion forced exporters to defer shipments or find alternative routes, most of which were via Romania by rail or barge. Those trains and smaller boats weren't able to handle much more than 2.5 million mt a month.

In the first three months of the grain corridor's operation -- August to October -- the deepsea ports shipped 4.4 million mt of corn. That was more than the 3.8 million mt over the same period a year earlier but wasn't sufficient to clear the corn remaining from the 2021 crop.

According to the USDA's Agricultural Attaché covering Ukraine, the country's corn stocks stood at 11 million mt on Oct.1, the first day of the 2022-23 marketing year, four time higher than a year earlier.

In the short term market participants agree that Ukraine's corn exports will be limited by the frequency of ships visiting its ports rather than its farmers' ability to produce the grain.

Shipping data shows that Ukraine exported 4.7 million mt of corn by sea in November 2021 and a total of 19.4 million mt in the four months ending February 2022. That period following the harvest is typically the busiest time of the year for Ukraine's corn exports.

China, Spain, the Netherlands, Turkey and Egypt were the five largest importers for Ukrainian corn between 2020 and 2022, with the world's most populous country taking slightly less than a third of the total. Since Russia's invasion of Ukraine, China has moved to secure alternative corn supplies, culminating in the country's deal with Brazil, responding to that country's bumper crop with the first ever shipment in November 2022.

China has remained the largest single destination for shipment of Ukraine corn under the Black Sea Grain Initiative, but its share of the total has shrunk, with Spain and Italy becoming the most conspicuous buyers. The European Union's need for imported corn has been especially acute this year due to the drought that many countries, including France, experienced in the key pollination period over the summer. Much of the corn exported from Romania will continue to be of Ukrainian origin.

Ukraine corn destinations (Aug-Dec 2022) under the Black Sea Grain Initiative

Agronomists wishing to make longer term forecasts for Ukraine's corn exports need to cross into the field of military and international relations. At the farm level, there are two areas in which the impacts of the conflict are clear, even if their duration isn't: the planted area will shrink because of territory occupied by Russia and yields will be lower because farmers won't buy fertilizer from Russia. Financing will also present a challenge to farmers, and the government's 2022.

"The key trend to watch out for 2023 for Ukraine and Black Sea corn is prospective area," said Elena Neroba, who explained that the current price is below the cost of production and drying.

"The lack of electricity and expensive gas make drying unprofitable," added Neroba, who noted that around 20% of the crop was still in the field at the end of 2022. She expects 10% to be left in the field through the winter and harvested in spring.