Ukraine crisis may cause grain export 'bottleneck'

by Agrimoney.com

Ukraine grain exports could face a "bottleneck" next season if Moscow imposes strongarm tactics on a three-mile-wide stretch of water next to Crimea, SovEcon warned, as it forecast further rises in Russian wheat prices.

Russia's annexation of Crimea risks costing Ukraine not only the grain export capacity in the region itself but in its two eastern ports of Mariupol and Berdyansk.

These ports open not directly onto the Black Sea, but onto the Azov Sea, requiring vessels to negotiate the narrow Kerch Strait between Russia and Crimea to reach Ukraine's grain export buyers, largely in the Middle East and North Africa.

'Ukraine bottleneck'

"I hope it does not happen, but now that Russia controls both side of the Kerch Strait, it if wanted to introduce, perhaps, a levy on exports passing through, it could do that," Andrey Sizov Jr, managing director at Moscow-based SovEcon, said.

"That might cause Ukraine some issues.

"Looking longer-term, Ukraine might become a bottleneck for new crop shipments," which would be forced to pass through the western ports, such as Odessa.

Ukraine, with capacity for some 40m-45m tonnes in grain exports, has had more than adequate capacity for its shipments, which the government has pegged at 33m tonnes for 2013-14.

However, it has lost some 4m-4.5m tonnes with the annexation of Crimea, and the loss of Mariupol, with capacity for 12m tonnes of cargos of all varieties, and Berdyansk would curtail further any excess.

Prices to rise

The comments came as Mr Sizov forecast further rise in the price of Russian grain prices, which for benchmark 11.5% protein supplies ended last week at $295 a tonne, up some $10 a tonne week on week and above an early-February low of $270 a tonne.

Prices have been buoyed by, besides stronger international values, a switch by traders to "fulfilling their obligations" for grain deliveries from Russia, rather than Ukraine, for fear of disruption.

With a weakening of the rouble also paying farmers to hold crops, which are denominated in dollar, rather than sell, growers have moved to "suspend" their sales in expectation of better prices ahead.

"Prices will keep rising for the next couple of weeks, at least."

'Hard to maintain positive margins'

Indeed, farmers' reluctance to sell looks likely to keep Russian prices rising for now, even if international values retreat, "whatever happens over Russia and Ukraine, and whether any new sanctions are imposed against Russia", Mr Sizov told Agrimoney.com.

"The market has its own dynamics, momentum."

This could mean traders swallowing losses on Russian exports, which are likely to maintain decent volumes next month because of orders already booked.

"It will be hard for traders to maintain positive margins when exporting grain," he said.

However, prices are approaching the $300-a-tonne level which has represented something of a ceiling to cash values in recent months.

See the original article >>