Black Sea attacks threaten Ukraine and Russia grain exports as sowing incentives weaken

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Black Sea grain exports under threat

Highlights

Russian and Ukrainian Black Sea attacks have rendered commercial shipping routes uninsurable, stalling exports and creating surplus grain stocks across both countries.
PrivatBank doubled working-capital loans to agribusinesses to $34.2 million between June and August 2023, but liquidity remains tied up in inventories as most Ukrainian grain is unprofitable to sell.
Ukrainian grain and legume exports in August fell 58% year-over-year to 981,000 tonnes, amplifying global supply risks and supporting commodity prices amid weak European and U.S. corn harvests.

Harvest pressure and planting decisions

As reported by CNBC, farmers in southern Ukraine are moving through the autumn harvest with solid yields in some crops, but many cannot turn that production into profitable sales because export channels remain blocked. Millions of tonnes of grain and oilseeds that would normally move to Europe, the Middle East, Asia and Africa are instead building up in storage across Ukraine and Russia.

Russian drone and missile strikes on Black Sea targets intensify over the summer and into the fall, making commercial shipping effectively uninsurable, while Ukrainian retaliatory attacks are also disrupting Russian exports. With attacks continuing into October and ceasefire prospects appearing slim, the blockage is giving cash-strapped farmers little reason to sow for the 2027 season in the coming months.

Oleksandr Chumak, a farmer in Ukraine's Odesa region, says about 80% of his grain cannot currently be sold at a profit and that he is out of cash. Andrii Dykun, chairman of the Ukrainian Agri Council, says producers still need to pay taxes and land rent even as sales stall, and argues there is little incentive to plant if farms are generating no profit.

PrivatBank, Ukraine's biggest lender, says it disbursed 1.53 billion hryvnia, or $34.2 million, in working-capital finance to agribusinesses between June and August, more than double the 718 million hryvnia lent in the same period last year. The bank says funds are effectively tied up in grain inventories while farms still need liquidity for operating costs and for autumn and spring sowing campaigns.

Yevhen Zaihraiev, chief corporate and SME business officer at state-owned PrivatBank, says some producers are selling sooner at weaker prices to preserve liquidity, while others with storage capacity are holding back in the hope of better prices. He also says farmers are gradually revising next year's planting plans toward oilseeds and niche crops that are less exposed to logistics costs, a shift Chumak says he plans to follow by scaling back corn and barley.

Global supply risks and market pricing

Ukraine's agricultural sector has been under pressure since Russia's full-scale assault began in early 2022, with farm takeovers, mines and labour shortages compounding export disruption. International efforts to preserve trade flows, including the failed Black Sea initiative and the European Union's politically contentious Solidarity Lanes, have struggled to provide a durable solution.

Before the war, Ukraine and Russia together supplied more than half of global sunflower oil, nearly a fifth of barley and 14% of wheat, according to the UN. Around 90% of Ukraine's main agricultural exports typically move via the Black Sea, but grain and legume exports in August total 981,000 tonnes, down about 58% from a year earlier.

The supply risk is being amplified by weakness elsewhere, with Europe expected to post a poor corn harvest and requiring larger imports while feed demand remains high. The U.S. is also facing a weaker corn crop, although stronger wheat and barley harvests in Canada, Australia and Argentina, along with good output in the Middle East and North Africa, are helping to cushion the market for now.

Benoit Fayaud, senior manager for grains and oilseeds analysis at Expana, says the continued blockage is supporting commodity prices outside Russia and Ukraine. He says any agreement that restores exports from both countries could quickly flood the market with cheap supply and push grain prices at other origins down by a few dozen dollars, creating a sharply more bearish global pricing environment.

In our earlier article on Russia’s drone strikes on Dnipro River bridges in Kyiv and Zaporizhzhia, we described how repeated attacks were disrupting key transport links and raising economic and operational risks for Ukraine. We also noted that limited alternative crossings and constrained air-defence capacity could turn even partial bridge damage into prolonged closures, compounding pressure on civilian supply chains and daily life as winter nears.

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