Possible Azov sea shipping restrictions push wheat prices higher. Will grain prices go up in Ukraine?
Wheat futures in Europe and the United States surged amid reports of possible shipping restrictions in the Azov Sea and the Kerch Strait. The September MATIF contract gained about €10/t, while the CBOT September SRW wheat futures contract rose by nearly $10/t. However, this does not necessarily mean higher prices for the Ukrainian market because of the risks facing ports and export logistics.
According to Bohdan Kostetskyi, partner at Barva Invest, the sharpest move in wheat prices began after reports emerged about a possible meeting of Russia’s Security Council and potential restrictions on shipping through the Kerch Strait and the Azov Sea.
Context. The market has been circulating information that Russia may restrict or temporarily suspend navigation through the Azov-Don Canal and the Kerch Strait for 3–4 weeks. Some operators even suggested that vessels already loaded with cargo could be prevented from leaving port and forced either to wait or unload their cargoes. However, these reports have not been officially confirmed.
“Today wheat futures jumped sharply: the September MATIF contract added about €10/t, while the September CBOT soft red winter wheat contract was up around 3.5% at one point, or nearly $10/t. The sharpest move started after reports about a possible meeting of Russia’s Security Council and possible restrictions not only on passage through the Kerch Strait but on traffic in the Azov Sea in general,” Kostetskyi said.
Kostetskyi estimates that around 10 million tons of Russia’s roughly 45 million tons of grain exports pass through the Azov basin, mainly via small coaster vessels.
He believes the current exchange rally is driven not only by the risk of a disruption to Azov exports, but also by panic-driven short covering on the Paris and Chicago exchanges.
“The market is pricing in the risk that wheat exports from the Black Sea basin could be significantly restricted. But for Ukraine, such an escalation is not necessarily positive. Russia’s likely response would be attempts to inflict maximum damage on our export chain — port infrastructure and vessels,” Kostetskyi said.
In his view, restrictions on Russian exports through the Azov Sea could theoretically support the Ukrainian wheat market, which is currently trading weakly. However, new risks for Ukrainian ports could further constrain export logistics and reduce buyers’ willingness to work with Ukrainian grain.
“As long as the escalation continues, international exchanges may remain firm. But Ukrainian domestic prices could remain depressed because of logistics and export risks. When tensions ease, exchanges will likely pull back, while our domestic market should begin to normalise,” he added.
Kostetskyi also does not expect that a possible reduction in Russian supplies through the Azov Sea will automatically increase Turkish demand for Ukrainian wheat. He estimates that Turkey harvested a large domestic crop and may cut wheat imports from 5.5 million tons last season to about 2.5–2.9 million tons this season.
In addition, Turkey is expected to focus primarily on high-quality wheat and tighten import requirements in order to protect its domestic market.
He also does not expect a significant increase in domestic wheat prices.
“Producers are effectively not selling grain: yields are good, but they are dissatisfied with current prices, so most wheat is being moved into storage,” Kostetskyi concluded.
Meanwhile, analysts at ASAP Agri said that by Friday evening the Black Sea wheat market had finally received the bullish signal it had been waiting for.
At the same time, the agency believes the impact will be limited and will mainly affect shipments through the Port Kavkaz and Port of Taman, which depend on passage through the Kerch Strait.
Wheat from the Azov Sea is mostly shipped by small vessels to the Sea of Marmara, but current volumes remain relatively small.
“Recent sales prices from the Azov direction were very low. According to available information, the latest cargoes of Russian 12.5% protein wheat delivered to the Sea of Marmara were sold at around $220/t CIF. That is nearly $30/t lower than a month ago and $10/t lower than a year ago,” said Salih Karagöz, broker at Atria Brokers.
ASAP Agri believes that in the short term, sellers may use the uncertainty surrounding the Azov Sea and the Kerch Strait as an argument for higher prices. However, the overall market impact will remain limited as long as Russia’s deep-water Black Sea ports continue operating.
Kostiantyn Sobol, founder of Marelis Navigation S.A., notes that Azov shipments are largely handled by coasters and river-sea vessels. Because of their shallow draft and technical limitations, these vessels mainly operate short routes between the Azov and Black Seas, particularly to Turkey.
“If navigation in the Azov Sea is restricted, part of the coaster fleet and river-sea vessels that worked with Russian ports will be left without cargoes. They cannot simply switch to long-haul sea routes, so they will look for work in the Black Sea — in Ukraine, Romania, Bulgaria and Georgia,” Sobol said.
According to him, some of this fleet may shift to Ukrainian routes, including the Danube ports. This would increase the number of vessels available to exporters and could push freight rates lower.
“The market will have more coasters available, which means freight rates for Danube shipments may decline. Even a pause of several weeks in Azov loadings creates a window of opportunity for Ukrainian traders,” he added.
