Farming in a New World of Uncertainty
Russia’s aggressive invasion of Ukraine has and will continue to rile markets, affecting not only U.S. farmers but agricultural commodity markets worldwide.
WFU Grain Committee
With the turmoil overseas, farm inputs can be expected to continue to rise, particularly fuel and natural gas. Fertilizer prices, especially potash because of its production and export from Russia and Belarus, are expected to rise. Grain prices too have been affected.
Russia and Ukraine are the two largest producers and exporters of wheat in Europe and Eurasia Union. They are considered the bread basket for Europe, Eurasia Union, and the Mediterranean. Ukraine since 2012 has exponentially increased wheat production.
Russia and Ukraine in 2021 exported 45 MM MT and 16 MM MT (24 percent and 9 percent), respectively, of global wheat exports. Ukraine is also a major world producer and exporter of seldom recognized grain crops like barley, corn, sunflower, and rapeseed.
Ukraine actually grows and exports more corn than wheat. EU countries, China (which imported more from Ukraine than the US), Spain, Netherlands, Iran, and South Korea are principal importers of Ukrainian corn.
Virtually all Ukrainian exports are from 18 ports in the Sea of Azov or Black Sea. Cargill owns part of a port west of Crimea; CHS exports out of three ports. Ukraine’s largest and busiest port, Mariupol, in the Donetsk northeast region is on the Sea of Azov, where ships must past through the Kerch Straits to access the Black Sea, controlled by Russia since 2014.
Prior to the start of the Russian invasion, Ukraine ordered its ports to shut down. As long as Russia is unable to attain control of Ukraine, it is doubtful that Russia will reopen the ports and squeeze Ukraine commercially.
It seems probable that Ukraine will be unable to grow and export crops. Increasing sanctions on Russia because of the invasion have largely been financial — freezing foreign currency reserves. The sanctions also deter Russia’s ability to settle trade and inter-bank transactions, making it difficult for Russia to export not just oil and gas, but also grain.
Russia will be able to redirect only part of its lost wheat exports by China’s unexpected agreement to purchase wheat from any Russian region, despite years of China’s embargo because of phytosanitary disease of dwarf bunt fungus. China is expected to use these wheat imports for livestock feed, reducing its demand for imported feed corn.
Thus, clearly world supply for wheat and corn primarily will be reduced by at least Ukraine’s usual share of exports and by a significant reduction on Russian export of wheat. This will continue to drive grain prices higher not just for wheat and corn but for other grains as well, as they follow market leaders. While the wheat market had already begun in early February to increase prices from $7.54 per bushel in view of an expected invasion, prices have risen 33 percent and exceed $10 and can go higher yet for the aforenoted reason and unpredictable risk, and remain volatile for some time to come. Corn likewise has risen nearly 19 percent from $6.22 over the same period. The flight from risk to the US dollar may be a drag on US export competitiveness, but does not seem to be more powerful than the pull of the demand.
Given droughts in Iraq, Syria, and Iran and the politically sensitive high demand for wheat in countries of the Middle East and Africa, it is difficult to foresee serious drag on prices.
As farmers, we do not wish to capitalize upon another fellow farmer’s misery, whether here or abroad, but we may and will benefit from increases in prices and markets. We are not just takers, we are givers too. As in years’ past, when a farmer neighbor suffered hardship — a barn fire, a death or injury in the family — we would help with chores, barn raising, planting or harvest till they regained stability. This is an opportunity for us to voluntarily set aside some of the unexpected profits to set up a non-profit fund to help rebuild farm buildings, acquire equipment and working capital, and identify Ukrainian relatives, acquaintances or farm groups for the days when our Ukrainian neighbor farmers can once again farm their land in peace and freedom.