ECONOMY
‘Strictly Speaking, No Grain Deal Was Ever Made’
October 26, 2023
Andrey Sizov
Head of the research agency SovEconTatiana Rybakova
Journalist and writer
Food market researcher Andrey Sizov explains what the essence of the “grain deal” was, why, despite its cessation, exports of Ukrainian grain continue to move and how Russian government intervention is affecting the volume of grain supplies out of Russia.
I wanted to start from scratch. Namely, what exactly is meant when people talk about the “grain deal” between Russia and Ukraine?
I believe that this was a favor from the Kremlin to Ankara. Erdogan wanted to look like a peacemaker and the Kremlin allowed him to do so. There was no direct gain for Russia, but Ukraine, while this deal was in effect, was able to export grain from its main ports from the region known as “Greater Odesa,” where the three main terminals for exporting grain from the country are located. At that time (the agreements under the Black Sea Grain Initiative were signed in Istanbul on July 22, 2022), this was extremely important for Ukraine because it had poorly developed alternative routes and had very high grain reserves after the record 2021 harvest. Thanks to the deal, 33 million tons of food were exported from Ukraine, of which 28 million tons of grain left these Odesa terminals.
What exactly was the deal? And for how long was it to last? I ask because the sides have given different time periods for its extension – Russia has said 60 days, Ukraine and other participants 120 days.
Strictly speaking, there was no deal. Officially it was called the “Black Sea Grain Initiative” – this is what was written in the documents that, it seems, no one except me read. The time period was also spelled out there: 120 days with automatic extension in the absence of objections from any of the sides. It is clear that only one side could have objections – Russia. In fact, this agreement was extended several times for 120 days before Russia said that it was extended for 60 days. Although, strictly speaking, there was no such option in the document that someone could unilaterally change the extension period.
One more thing – as I understand it, there was no deal between Russia and Ukraine. Did each conclude their own agreement with Turkey? In other words, were there two documents?
Technically, there were three documents, but again – there was no deal. That agreement, the Black Sea Grain Initiative, was between Ukraine, Russia and Turkey through the mediation of the UN. Just for political reasons, Russia and Ukraine did not sign the same document – physically the same paper – they signed different papers. But both the Ukrainian version and the Russian version indicate that the parties to the agreement are these countries – Russia, Ukraine and Turkey. It’s just that later a little propaganda began on both sides, including Kyiv, that supposedly “we had not signed anything with Russia.” This, to put it mildly, is inaccurate: sure, you did not sign the same paper, but each of the papers stated that all the specified countries were parties to the agreement.
I believe that this was a favor from the Kremlin to Ankara. Erdogan wanted to look like a peacemaker and the Kremlin allowed him to do so. There was no direct gain for Russia, but Ukraine, while this deal was in effect, was able to export grain from its main ports from the region known as “Greater Odesa,” where the three main terminals for exporting grain from the country are located. At that time (the agreements under the Black Sea Grain Initiative were signed in Istanbul on July 22, 2022), this was extremely important for Ukraine because it had poorly developed alternative routes and had very high grain reserves after the record 2021 harvest. Thanks to the deal, 33 million tons of food were exported from Ukraine, of which 28 million tons of grain left these Odesa terminals.
What exactly was the deal? And for how long was it to last? I ask because the sides have given different time periods for its extension – Russia has said 60 days, Ukraine and other participants 120 days.
Strictly speaking, there was no deal. Officially it was called the “Black Sea Grain Initiative” – this is what was written in the documents that, it seems, no one except me read. The time period was also spelled out there: 120 days with automatic extension in the absence of objections from any of the sides. It is clear that only one side could have objections – Russia. In fact, this agreement was extended several times for 120 days before Russia said that it was extended for 60 days. Although, strictly speaking, there was no such option in the document that someone could unilaterally change the extension period.
One more thing – as I understand it, there was no deal between Russia and Ukraine. Did each conclude their own agreement with Turkey? In other words, were there two documents?
Technically, there were three documents, but again – there was no deal. That agreement, the Black Sea Grain Initiative, was between Ukraine, Russia and Turkey through the mediation of the UN. Just for political reasons, Russia and Ukraine did not sign the same document – physically the same paper – they signed different papers. But both the Ukrainian version and the Russian version indicate that the parties to the agreement are these countries – Russia, Ukraine and Turkey. It’s just that later a little propaganda began on both sides, including Kyiv, that supposedly “we had not signed anything with Russia.” This, to put it mildly, is inaccurate: sure, you did not sign the same paper, but each of the papers stated that all the specified countries were parties to the agreement.
Putin-Erdogan meeting in Sochi, September 2023. Source: X
Is this agreement now in force or is it dead even in the legal sense?
This agreement actually ceased to work a long time ago, namely in July 2023. It was in force, not without problems, for about a year and was not extended by Russia in July. Since then, it has not been in force, although Turkey has made more than one attempt to extend it – in particular, when Erdogan visited Putin in Sochi in September; apparentlythis was one of the main issues discussed, as was probably the then-imminent offensive of Azerbaijan [against Nagorno-Karabakh – TR], though Turkey did not achieve any progress. So, at present this agreement, in the form in which it was in effect, no longer exists.
Still, as I understand it, Ukraine has been exporting grain by sea for two months now – and nothing has happened. Does this mean that Ukraine no longer needs the deal?
Ukraine has been exporting its grain from the ports of Greater Odesa not for two months, but less, for several weeks. But yes,
This agreement actually ceased to work a long time ago, namely in July 2023. It was in force, not without problems, for about a year and was not extended by Russia in July. Since then, it has not been in force, although Turkey has made more than one attempt to extend it – in particular, when Erdogan visited Putin in Sochi in September; apparentlythis was one of the main issues discussed, as was probably the then-imminent offensive of Azerbaijan [against Nagorno-Karabakh – TR], though Turkey did not achieve any progress. So, at present this agreement, in the form in which it was in effect, no longer exists.
Still, as I understand it, Ukraine has been exporting grain by sea for two months now – and nothing has happened. Does this mean that Ukraine no longer needs the deal?
Ukraine has been exporting its grain from the ports of Greater Odesa not for two months, but less, for several weeks. But yes,
“It’s been several weeks since Ukraine began loading grain at the Odesa terminals, which are crucial for it, as they are the main routes for grain exports.”
View of the Odesa port. Source: Wiki Commons
They are also important because they are deep-water terminals, unlike, for example, the shallow-water terminals on the Danube, where deep-sea vessels cannot enter. And the global trade in grain, and food in general, is carried out by large Panamax-class vessels – from 60 tons deadweight. Ukraine could not take them besides in Odesa and Mykolaiv.
Mykolaiv is still not operational, since it is not far from the front line, but the Odesa terminals are, and the total number of ships that have left Odesa ports or are heading there is approaching 30. Which means that millions of tons of grain have either already been shipped or are currently in the process of being shipped. For Ukraine and for the global market this is already a significant volume.
How much is this approximately versus the usual volume of Ukrainian grain exports?
The usual volume depends on many things, including the overall supply. And the overall supply of grain in Ukraine has dropped due to lower production in 2022-23 amid the military operations. Ukrainian ports could handle 2.0-2.5 million tons, while around 1.0 million tons could pass over land.
Note that in the global grain balance this situation is not so critical – Ukraine, even without the possibility of exporting through the Odesa terminals, could export its existing grain reserves (other routes are through Ukrainian river ports on the Danube to the seaport of Constanta in Romania and by rail to Poland – TR).
But the fact that these terminals were brought back online means sharply reduced logistics costs for Ukrainian grain. Which means that Ukrainian farmers, all other things being equal, receive much more from the sale of grain, since their profit is the world price minus expenses, including logistics.
For comparison: if logistics costs for the very first deliveries from the Odesa terminals [after the grain deal came into effect], for example, on the popular Odesa-Spain route, were $100 per ton, now they are $40-50 per ton. They halved. All thanks to the fact that more ships appeared, capacity appeared, ship insurance appeared – which is important – and things, as they say, got rolling.
The fact that Russia has now sent MiG-31s armed with Kinzhal missiles to patrol the Black Sea has not affected grain prices or the cost of logistics?
In the summer months, the market completely stopped paying attention to military operations in the Black Sea – which is probably not entirely fair. And whether the Kremlin will respond [to the fact that Ukraine continues to ship its grain] and what that response could be – all this the market continues to ignore.
Another thing is that observers, including us, have a lot of questions: we did not expect, to be honest, that the Kremlin would look so indifferently at how Ukrainian grain is flowing without its sanction. After all, this means that Russia’s claim that it controls the Black Sea is not true.
Mykolaiv is still not operational, since it is not far from the front line, but the Odesa terminals are, and the total number of ships that have left Odesa ports or are heading there is approaching 30. Which means that millions of tons of grain have either already been shipped or are currently in the process of being shipped. For Ukraine and for the global market this is already a significant volume.
How much is this approximately versus the usual volume of Ukrainian grain exports?
The usual volume depends on many things, including the overall supply. And the overall supply of grain in Ukraine has dropped due to lower production in 2022-23 amid the military operations. Ukrainian ports could handle 2.0-2.5 million tons, while around 1.0 million tons could pass over land.
Note that in the global grain balance this situation is not so critical – Ukraine, even without the possibility of exporting through the Odesa terminals, could export its existing grain reserves (other routes are through Ukrainian river ports on the Danube to the seaport of Constanta in Romania and by rail to Poland – TR).
But the fact that these terminals were brought back online means sharply reduced logistics costs for Ukrainian grain. Which means that Ukrainian farmers, all other things being equal, receive much more from the sale of grain, since their profit is the world price minus expenses, including logistics.
For comparison: if logistics costs for the very first deliveries from the Odesa terminals [after the grain deal came into effect], for example, on the popular Odesa-Spain route, were $100 per ton, now they are $40-50 per ton. They halved. All thanks to the fact that more ships appeared, capacity appeared, ship insurance appeared – which is important – and things, as they say, got rolling.
The fact that Russia has now sent MiG-31s armed with Kinzhal missiles to patrol the Black Sea has not affected grain prices or the cost of logistics?
In the summer months, the market completely stopped paying attention to military operations in the Black Sea – which is probably not entirely fair. And whether the Kremlin will respond [to the fact that Ukraine continues to ship its grain] and what that response could be – all this the market continues to ignore.
Another thing is that observers, including us, have a lot of questions: we did not expect, to be honest, that the Kremlin would look so indifferently at how Ukrainian grain is flowing without its sanction. After all, this means that Russia’s claim that it controls the Black Sea is not true.
“It turns out that at least this part of the Black Sea is controlled by Ukraine, and the Kremlin either cannot do anything about that or is not trying at this point.”
Grain silo in Odesa Region after a missile attack on August 23, 2023. Source: Telegram
But Russia has more than once fired missiles at grain silos and elevators, including in Odesa and on the Dnipro. Is this also something the markets are ignoring?
Shooting at a grain silo is pointless because there are thousands of them. If a missile hits one and destroys, say, thousands of tons of grain, this worries journalists, but not the market; for the market these are trifles.
If Russia wants to seriously scare the markets, to prove that nothing can be done without it, it needs to launch some kind of massive attack on the Greater Odesa region.
But there have been no such attacks so far – 1-2 missiles and that’s it. It may be the case that Russia is being forced to limit the number of strikes so as to stockpile missiles for mass bombing campaigns in the winter.
As for the ports on the Danube, drone attacks are a regular occurrence there. There are no missiles, as Romania is across the river, and Russia, just in case, is not launching missiles so as not to come into conflict with NATO.
I would also like to talk about the land corridor for Ukrainian grain exports. After the ruling Law and Justice party lost its majority in the Polish Sejm, can we expect a relaxation of the requirements to transport Ukrainian grain through Poland and through EU countries in general?
There was no ban on transit. Eastern European countries separated the issues of transit and sales of Ukrainian grain in these countries, and the ban concerned sales specifically. Although this conflict was, of course, 90% pulled out of thin air by the Polish Law and Justice party (PiS). From a market perspective, if transit is possible, then Ukrainian grain, without competing with Polish grain inside Poland, is competing with it in neighboring markets and at Polish ports. In other words, the ban on the sale of Ukrainian grain has not eliminated the competition.
But this was a political act by PiS, which, note, did not really help it, as the opposition is now coming to power in Poland. Who in this story clearly looked weak was Brussels, whose opinion was completely ignored [by the Polish government and several other Eastern European countries]. As a result, everyone saw that the opinion of individual countries could run counter to the economic policy of Brussels, even though a common foreign economic policy is one of the pillars on which the EU is based.
Returning to Poland, I think that this ban will be lifted – not so abruptly, of course, but it will be lifted. As a result, exports over land will go a little more smoothly. For Ukraine, it would be a little more convenient, but this is not a breakthrough – the most important thing is that the transit took place, it went through Romania. Because, besides the Black Sea ports, the most important corridor for Ukrainian grain exports is Romania, its port of Constanta, where grain can be exported both by land and from the mentioned Danube ports. This corridor functioned properly; Poland just made the biggest fuss.
Does the fact that Ukrainian grain is now exported without hindrance somehow worsen the situation in world markets for Russian grain?
No, this is not critical. For world markets, it is important how much grain can be supplied from all countries. From this perspective, the launch of Ukrainian grain exports through the ports of Odesa does not fundamentally change the situation in the world market in terms of supply volumes. Sure, it played some role in bringing wheat prices down a bit, but not a leading one – Ukraine, especially after the weak harvests of 2022-23, is not one of the players driving the world grain market, unlike Russia.
Still, should something happen along the lines of a massive attack on the Odesa terminals, like I said, it would be serious. And after the cancellation of the grain deal, world prices soared for a couple of weeks – but then fell. Now, they are even below the levels they were at during the grain deal, in early July.
How will Russia’s deal with China to supply 70 million tons of grains and oilseeds over 12 years affect the markets?
All the news about this “mega deal” is coming out of Russia, while the rest of the world is not aware of it. So,
Shooting at a grain silo is pointless because there are thousands of them. If a missile hits one and destroys, say, thousands of tons of grain, this worries journalists, but not the market; for the market these are trifles.
If Russia wants to seriously scare the markets, to prove that nothing can be done without it, it needs to launch some kind of massive attack on the Greater Odesa region.
But there have been no such attacks so far – 1-2 missiles and that’s it. It may be the case that Russia is being forced to limit the number of strikes so as to stockpile missiles for mass bombing campaigns in the winter.
As for the ports on the Danube, drone attacks are a regular occurrence there. There are no missiles, as Romania is across the river, and Russia, just in case, is not launching missiles so as not to come into conflict with NATO.
I would also like to talk about the land corridor for Ukrainian grain exports. After the ruling Law and Justice party lost its majority in the Polish Sejm, can we expect a relaxation of the requirements to transport Ukrainian grain through Poland and through EU countries in general?
There was no ban on transit. Eastern European countries separated the issues of transit and sales of Ukrainian grain in these countries, and the ban concerned sales specifically. Although this conflict was, of course, 90% pulled out of thin air by the Polish Law and Justice party (PiS). From a market perspective, if transit is possible, then Ukrainian grain, without competing with Polish grain inside Poland, is competing with it in neighboring markets and at Polish ports. In other words, the ban on the sale of Ukrainian grain has not eliminated the competition.
But this was a political act by PiS, which, note, did not really help it, as the opposition is now coming to power in Poland. Who in this story clearly looked weak was Brussels, whose opinion was completely ignored [by the Polish government and several other Eastern European countries]. As a result, everyone saw that the opinion of individual countries could run counter to the economic policy of Brussels, even though a common foreign economic policy is one of the pillars on which the EU is based.
Returning to Poland, I think that this ban will be lifted – not so abruptly, of course, but it will be lifted. As a result, exports over land will go a little more smoothly. For Ukraine, it would be a little more convenient, but this is not a breakthrough – the most important thing is that the transit took place, it went through Romania. Because, besides the Black Sea ports, the most important corridor for Ukrainian grain exports is Romania, its port of Constanta, where grain can be exported both by land and from the mentioned Danube ports. This corridor functioned properly; Poland just made the biggest fuss.
Does the fact that Ukrainian grain is now exported without hindrance somehow worsen the situation in world markets for Russian grain?
No, this is not critical. For world markets, it is important how much grain can be supplied from all countries. From this perspective, the launch of Ukrainian grain exports through the ports of Odesa does not fundamentally change the situation in the world market in terms of supply volumes. Sure, it played some role in bringing wheat prices down a bit, but not a leading one – Ukraine, especially after the weak harvests of 2022-23, is not one of the players driving the world grain market, unlike Russia.
Still, should something happen along the lines of a massive attack on the Odesa terminals, like I said, it would be serious. And after the cancellation of the grain deal, world prices soared for a couple of weeks – but then fell. Now, they are even below the levels they were at during the grain deal, in early July.
How will Russia’s deal with China to supply 70 million tons of grains and oilseeds over 12 years affect the markets?
All the news about this “mega deal” is coming out of Russia, while the rest of the world is not aware of it. So,
“I will assume with a 90% probability that there is no deal, just someone trying to capitalize on Russia-China relations to the fullest.”
Yet if I am wrong and we are to believe the Russian media, then the total volume of contracts concluded for this “new overland grain corridor” is now 170 million tons, and by September supposedly 100 million tons had been sold. But such contracts do not exist in principle. A contract for several hundred thousand tons is already a major deal. Here we are talking about 170 million tons – approximately 4-5 times Russia’s annual export volumes. What we have are several silos on the border between Russia and China with a capacity of 80,000 tons and a lot of noisy statements.
Besides a potential attack on the Odesa terminals, what other events could affect world grain prices?
If we are talking about wheat prices (and Ukraine is first and foremost wheat), then the fundamental factors are the overall volume of supply and demand, [and] the actions of funds [speculating in grain futures – TR], which may be completely unrelated to the current agenda. If we are talking about the Black Sea market, then, of course, the key issue is not Ukraine, but Russian exports.
Russian exports – and this has become the talk of the town – have suffered from government interference in recent months. Attempts to ban grain sales at global prices, which Russian officials believe are too low, are leading to a sharp drop in export sales. Shipments, as we see, also began to fall significantly. With the strong harvest that Russia has almost fully brought in, with the almost record supply of wheat that Russia has, these are not the export levels that the market expected.
It seems that the actions of the Russian authorities, which are working to restrict exports, are a time bomb that may work, causing prices to rise. Because, I repeat, this season Russia is a significant supplier of wheat, and any noticeable problems with supplies from Russia may affect prices. I believe that the high volumes of Russian sales that the market expects will not materialize.
For example, as of October 20, about 3.84 million tons of Russian wheat were purchased and delivered. A month before (for the same period in September), the figure was 5.00 million tons. And further export volumes will decrease relative to the high, as, given the infrastructure, if you underdeliver something now, you will not be able to compensate for it later – you cannot supply more than your ports and railroads can handle. And Russian infrastructure can ship a maximum of 5-6 million tons of grain per month.
In general, what does the coming winter look like for the global grain market?
From the perspective of global markets, wheat stocks are low by historical standards. We believe that in September the market passed the price trough and that prices will continue to rise. How much they will rebound will depend, among other things, on supplies through the Black Sea.
Besides a potential attack on the Odesa terminals, what other events could affect world grain prices?
If we are talking about wheat prices (and Ukraine is first and foremost wheat), then the fundamental factors are the overall volume of supply and demand, [and] the actions of funds [speculating in grain futures – TR], which may be completely unrelated to the current agenda. If we are talking about the Black Sea market, then, of course, the key issue is not Ukraine, but Russian exports.
Russian exports – and this has become the talk of the town – have suffered from government interference in recent months. Attempts to ban grain sales at global prices, which Russian officials believe are too low, are leading to a sharp drop in export sales. Shipments, as we see, also began to fall significantly. With the strong harvest that Russia has almost fully brought in, with the almost record supply of wheat that Russia has, these are not the export levels that the market expected.
It seems that the actions of the Russian authorities, which are working to restrict exports, are a time bomb that may work, causing prices to rise. Because, I repeat, this season Russia is a significant supplier of wheat, and any noticeable problems with supplies from Russia may affect prices. I believe that the high volumes of Russian sales that the market expects will not materialize.
For example, as of October 20, about 3.84 million tons of Russian wheat were purchased and delivered. A month before (for the same period in September), the figure was 5.00 million tons. And further export volumes will decrease relative to the high, as, given the infrastructure, if you underdeliver something now, you will not be able to compensate for it later – you cannot supply more than your ports and railroads can handle. And Russian infrastructure can ship a maximum of 5-6 million tons of grain per month.
In general, what does the coming winter look like for the global grain market?
From the perspective of global markets, wheat stocks are low by historical standards. We believe that in September the market passed the price trough and that prices will continue to rise. How much they will rebound will depend, among other things, on supplies through the Black Sea.
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