Ukraine announces a 120-day extension to the Black Sea Grain Initiative

The Ukraine Grain Corridor was officially extended last Saturday for 120 days, although Russia is stating it is only for 60 days.

The implications of a 60-day increase are drastic, as that is not enough leading time for exporters to get their ships in and out of the Black Sea according to Rural Bank agricultural analyst Sean Hickey.

"It basically causes a bit of a logistical nightmare for buyers through that grain export corridor," Mr Hickey said.

Last Monday, a Russian delegation announced that Moscow was ready to extend the Ukraine grain export deal but only for a further 60 days - while Turkiye and the United Nations announced last Saturday the agreement would be extended for the full 120 days.

Uncertainty about the extension of the agreement has caused Chicago wheat futures to hit a one-week high on Wednesday of last week.

CBH Group chief marketing and trading officer Jason Craig said the deal was providing confidence to the market that exports will continue from Ukraine, after more than 25 million tonnes have been exported since it was agreed in July 2022.

"However, uncertainty over timing is likely to create some concerns particularly if there is no resolution on the timing of the extension, which may create further local pricing opportunities," Mr Craig said.

While a failure to resolve when the extension begins will increase market unpredictability, it would also benefit Australian growers, according to Rabobank Research general manager Stefan Vogel.

There is the potential for a small window where Australia will be well positioned to sell wheat at a premium.

"We may not get that deal right when the deadline expires, we may get a signature one week later or two weeks later," Mr Vogel said.

"In terms of price reactions, I think that is a good period for somebody to take advantage, I think it is a good opportunity."

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Mr Vogel wasn't surprised another grain deal was signed, as Russia relies on the support of African nations - which purchase a large quantity of Ukraine grain.

Under the current agreement, 879 shipments (777 vessels), involving 22.7 million metric tonnes of grains and related foodstuffs, have left Ukrainian ports to many countries including China, Spain and Turkiye.

Australian Export Grains Innovation Centre (AEGIC) chief economist, Ross Kingwell, said it was worth noting that traditionally the main period for exporting grain, especially wheat, out of Ukraine's Black Sea ports is from August to November.

Hence, these current negotiations are not as crucial as the later negotiations - covering the main traditional period of exports.

"Given Turkiye's reliance on nearby Ukrainian grain it is no surprise that Turkiye and Ukraine are committed to ensuring an agreement to allow grain shipments from Ukraine's Black Sea ports for 120 days rather than 60 days, as suggested by Russia," Mr Kingwell said.

Due to damage to its logistics systems and the uncertainty of ongoing access to its Black Sea deep water ports the profitability of grain production in Ukraine is being impaired, he said.

Since 2021 a higher proportion of grain exports are flowing westwards out of Ukraine via rail and vehicle rather than via the usually much cheaper route of export via Black Sea ports.

In the 12 months ending at the start of March 2023, 10.5 million metric tonnes and 5.1mmt were exported from Ukraine via rail and road respectively.

Currently, Ukraine's reduced plantings of its winter crops, including wheat and barley, are reported to be mostly in a good to excellent condition.

In 2021, 7.07m hectares were planted to wheat but in 2022 only 4.98mha were planted, with quantities continuing to reduce."

Plantings of wheatin regions directly affected by the war are diminishing yet wheat plantings in regions in the west of Ukraine are increasing, but these increased plantings do not offset the reduced plantings elsewhere," Mr Kingwell said.

Mr Vogel said he was surprised by how efficiently Ukraine was exporting wheat, as he originally thought anyone would be insane to send their export ships into a war zone.

"They really convinced a lot of shippers to go there, and since September they have done a fantastic job," Mr Vogel said.

"They're exporting almost as much every month since September, as they have done in the previous season, which was a record season - so real respect to Ukraine."