Future of Ukrainian grain exports and global energy markets remains uncertain

With the winter fast approaching, conflict in Ukraine continues with no end in sight. At the end of September, Russia annexed Donetsk, Luhansk, Kherson, and Zaporizhzhia oblasts after quickly organizing referendums held from September 23 to 27. The UN General Assembly has condemned both actions as illegitimate. Since then, Ukrainian forces have retaken more territory, including in the annexed areas; for example, Ukrainian forces re-took the key logistical hub of Lyman in Donetsk in early October. More recently, in late October, Ukrainian advances prompted Russia to order the evacuation of at least 70,000 civilians from Kherson city. Meanwhile, Russia resumed missile strikes on parts of western Ukraine in early October, targeting energy infrastructure and causing blackouts in major cities.

In the first 16 days of October the Ukrainian Ministry of Agrarian Policy and Food reported that the country exported 3.6 million tons of agricultural commodities. This is roughly half of the 6.9 million tons of agricultural commodities that were exported throughout the month of September, suggesting that, on average, the pace of exports in the first half of October has remained similar to the previous month and notably lower than last year. This follows a steadily increasing pace of exports since the re-opening of three Ukrainian seaports under a deal to establish a safe corridor for exports through the Black Sea at the beginning of August.

In the latter half of October, the pace of exports reportedly slowed due to traders’ concerns over the approach of the November 19 deadline to extend the safe grain corridor deal, as well as due to a backlog in inspections. This concern culminated in Russia’s suspension of its participation in the deal on October 30, with global grain prices rising notably in response. Although Russia has since reversed its decision to withdraw from the deal and although exports from Ukrainian seaports continued in the interim period, Russia’s future behavior remains uncertain. Analysts expect that a Russian withdrawal from the agreement would result in rising shipping insurance costs, placing upward pressure on commodity prices. Any reduction in Ukrainian exports would also likely result in rising global prices as market actors respond.

Significant volumes of Ukrainian agricultural commodities remain in the country given the recently concluded winter harvest (including wheat, barley, and rapeseed) and ongoing spring harvesting (including maize and sunflower) on top of significant carryover stocks from the previous season, due to disruptions to exports since the start of the war. In response, the Ukrainian government and partners, including FAO, are working to distribute grain sleeves for temporary storage of millions of tons of agricultural commodities.

On October 5, the Organization of Petroleum Exporting Countries (OPEC) announced that they would be cutting production levels by 2 million barrels per day beginning in November 2022, representing OPEC’s largest production cuts since 2020. Prior to this, experts anticipated that global energy prices would decline in 2023 along with reduced demand. However, OPEC’s supply reductions and efforts by the EU and other western nations to reduce reliance on Russian energy — with the potential of retaliation from Russia in the form of restricting supply to countries who participate in imposing price caps on Russian oil purchases — render the future of global energy markets highly uncertain, with price increases possible given reduced supply and supply chain disruptions. Rising global energy prices would exert additional upward pressure on already elevated global food prices, driving further reductions in purchasing power among households in already food-insecure countries.