Ukraine Warns of Further Fall in Grain Harvest

Russia on Monday threatened to pull out of a deal that allows Ukraine to ship agricultural products via the Black Sea from three ports around Odessa earlier than expected. Both countries had agreed to extend the United Nations-backed pact on Friday.

Amid the difficult and uncertain export environment, Mr. Solskyi said farmers had chosen to shift to crops that yield fewer tons per hectare. That means the farmers have less to export in terms of amount and weight. To avoid relying on Black Sea ports, Ukraine has pivoted to export more of its goods via land borders, though this is more expensive and time consuming.

“You have less logistics (issues) because you have less to export,” Mr. Solskyi said.

In Ukraine, corn typically yields 7 metric tons per hectare and wheat is about 4 tons, but sunflowers and soybeans both yield 2.3 tons per hectare, according to Mike Lee, owner of Green Square Agro Consulting, a crop forecasting company that specializes in the Black Sea region.

Corn also uses more fertilizer and energy than other crops, both of which are in short supply.

The shift among farmers means that, allowing for normal weather, production of corn, wheat and other grains is forecast to be 10% to 15% less in 2023 than last year, Mr. Solskyi said.

Ukraine’s grain harvest last season was 53 million metric tons, a 20% reduction from the average over the past five years, according to the Ministry of Agrarian Policy and Food. The country’s combined harvest of all grain, sunflower seeds and soy came in at 63 million metric tons, a 52% drop compared with the previous year’s output.

Ukraine’s grain exports had picked up toward the end of last year to near prewar levels, partly thanks to the Black Sea export deal with Russia. Both countries on Friday agreed to extend the deal, which had been due to expire at the weekend.

On Monday, Russia’s Foreign Ministry said that it would suspend its participation in the grain deal on May 18 if no progress is made on easing obstacles to its own food exports resulting from sanctions imposed on Moscow in response to the invasion.

Ukraine had announced a 120-day extension, the standard period articulated under the deal first signed last year, but Russia said the deal was only extended for 60 days.

“In this agreement it was stipulated that it would be extended for 120 days,” said Mr. Solskyi. “These terms were approved by all the sides that signed the agreement.”

The text of the agreement says it can be automatically renewed every 120 days unless one party triggers an exit clause.

Russia, which has threatened to back out of the agreement before, said it wants to see progress on reconnecting the state-owned Russian Agricultural Bank, Rosselkhozbank, to the Swift global financial messaging system, the resumption of supplies of agricultural machinery and the restoration of a pipeline that ships ammonia, often used as a fertilizer, from Russia through Ukraine, among other requests.

“Without progress in implementing said requirements, which are absolutely not new and should be settled within the framework of the Russia-U.N. Memorandum, our participation in the Black Sea initiative will be suspended,” the Foreign Ministry said.

While the war initially spurred the cost of grain, prices later eased. So far this year prices have fallen partly because of large wheat harvests in Russia and Australia.

An up to 15% fall in the grain harvest, and an increase in sunflower seed and soy production, could affect prices again.

Less corn would be costly for the Chinese and European buyers who are dependent on Ukraine’s crop, said Masha Belikova, a grains analyst at price-reporting company Fastmarkets. Given that Ukraine exports up to 70% of the world’s sunflower oil, any change in that crop would have an impact, she said.