The recent escalation of Ukrainian drone attacks on shipping in Russia’s Sea of Azov has added a fresh risk premium to global grain markets, particularly as shipping through the Sea of Azov has faced restrictions.

RaboResearch general manager Stefan Vogel said the key question for grain markets is whether these attacks represent a temporary logistical disruption or a genuine threat to Russia’s position as the world’s largest wheat exporter.

“For Australian farmers,” Mr Vogel said “it is important to understand the role of the Azov region within Russia’s grain export system”. “The large-scale deep-water export hubs of Novorossiysk and Taman on the Black Sea are broadly comparable to many of Australia’s major grain export ports. In contrast, the Azov region lies 300 to 400 kilometres further north and consists primarily of the shallower ports. Located at the mouth of the Don River, these ports sit close to Russia’s major grain-growing regions and, in some cases, less than 100 kilometres from the Ukrainian border,” he said.

Mr Vogel said rather than a collection of global mega-ports, the region is better characterised as a network of busy river and coastal grain terminals. “Grain arrives by truck, rail and river barge before being loaded onto smaller vessels. In recent years, the Azov ports have handled around 15 per cent to 25 per cent of Russia’s total grain exports, equivalent to approximately seven to 12 million tonnes annually,” he said. “While important, they are not indispensable for a country that typically exports 50 to 60 million tonnes of grain each year, well more than Australia’s annual grain exports of 30 to 40 million tonnes.”

“Russian grain exporters can redirect shipments to deep-water Black Sea ports,” Mr Vogel said, “although this generally requires grain to be transported longer distances by rail to ports located further from the country’s main grain-producing regions”. Such a shift would likely increase handling and transport costs and could create congestion within the logistics system, he said. “However, it is unlikely to prevent substantial volumes of Russian grain from reaching export markets.”

Mr Vogel said the practical impact is therefore more likely to be reduced Russian export efficiency than a significant loss of export volume. “Higher costs may provide a modest benefit to farmers in other exporting regions, as Russian wheat values at Novorossiysk have already risen. Nevertheless, Russian wheat prices will have to try to remain competitive against supplies from countries such as France and Romania, which are also heavily marketing grain at the moment from the current harvest.”

In addition, the Rabobank analyst said Ukrainian Black Sea ports have recently faced more intense Russian attacks. “Well over 90 per cent of Ukraine’s grain exports move through the ports in the Odessa region. Global grain and canola markets watch this development nervously, given the scale of Ukraine’s grain and oilseed exports, which exceeded those of Australia by about 25 per cent in the last season. Rerouting Ukrainian grain exports from those ports at scale is not possible.”

For Australian growers, Mr Vogel said the implications are supportive for grain prices, but whether the price rally lasts will depend on the scale and duration of any disruptions in the region. “Grain price volatility is possible especially if the situation escalates further and exports from major deep-water Black Sea ports in either Russia or Ukraine are severely disrupted.”

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