Ukraine Makes a Lot of Grain: Now What?

Ukraine produces half of all the sunflower oil on the world export market, along with 15% of the corn, and nearly 10% of global wheat exports annually.
Ukraine produces half of all the sunflower oil on the world export market, along with 15% of the corn, and nearly 10% of global wheat exports annually.
(AgWeb)

The invasion of Ukraine by Russian forces that started on February 24, 2022, could influence the global grain markets for years to come.

While no one knows exactly what Russian dictator Vladmir Putin is thinking, there is no doubt that Ukraine’s agronomic production capacity makes the country an attractive possession for him. The Black Sea region is a major factor in the world grains and oilseeds complex.

Specifically, Ukraine produces half of all the sunflower oil on the world export market, along with 15% of the corn, and nearly 10% of global wheat exports annually. In terms of total world production, Ukraine ranks #1 in sunflower seeds, and in the top 10 for corn, barley, rapeseed, wheat, and soybeans.

The current agricultural situation in Ukraine is tenuous at best. Nearly all of the country’s winter wheat crop already is in the ground and reportedly in good condition. But plantings were down last fall, due to the drought and the high cost of nitrogen fertilizer.

Now, Ukrainian farmers worry they won’t have access to the fertilizer, fuel, and labor to properly see that currently sprouting crop through to harvest this summer. Those shortfalls – along with disrupted access to seed, pesticides and herbicides -- mean planting remains in limbo for corn, sunflowers, and soybeans, which normally would be starting soon.

Fuel is particularly scarce, as it is mostly being diverted to the national defense effort. In a Reuter’s news story, one farmer reported he had friends in northern Ukraine resorting to skimming fuel from a ditch that was filled with diesel after several train tankers were spilled by a Russian attack. Other farmers are scavenging diesel from abandoned Russian tank convoys.

Fertilizer is another wild card, not only for Black Sea growers, but for all of the European Union (EU) and the world market. Sanctions on Belarus and Russia have disrupted previously struggling fertilizer supply chains further. On March 2, the EU banned all fertilizer imports from Belarus, driving up EU fertilizer prices and squeezing its already deficient supply even more.

World grain supplies will undoubtedly be impacted by the war. Russia recently retaliated against western sanctions by banning exports of wheat, meslin, rye, barley and corn to the Eurasian Economic Union (EEU) – Belarus, Kazakhstan, Armenia and Kyrgyzstan – until Aug. 31.

Ukraine normally exports more than two-thirds of its annual wheat crop and 80% of its corn. But whatever products farmers can eek out of their fields this year are likely to remain in-country. Ukraine’s government announced on March 10 that it will establish a state-funded food reserve to feed the country’s citizens and military.

While Ukraine still has old-crop stores of 30% of its wheat and 45% of its corn on hand, it remains to be seen whether that inventory will be bought up by the government for national food security, or if closure and damage to critical ports in the region would even make export activity possible.

Two major shipping lines also have ceased doing business with Russia. Additionally, grain-trading giant Bungecorporation has suspended any new export business from Russia.  

Where all of these events shake out in terms of commodity prices continues to change nearly hourly, with volatile trading being the order of the day, every day, since the invasion began. Corn and wheat futures have traveled limit up and limit down across multiple days.

“Today, U.S. farmers could lock in $5.00 corn for the next four years,” said Dan Basse, president and CEO of AgResource Company on the  Top Producer Farm CPA Podcast.

Jacob Christy, analyst for The Andersons Inc., said, “volatility will remain the underlying feature of the market as the world tries to understand the potential risk to grain flows.

“Markets will remain headline-driven, which will lead to more violent price swings, as trade still has no idea what fair value is,” declared Christy, who also noted that up to 70% of Ukraine’s 2022 corn crop is at risk of not being planted and/or harvested.

“If we assume that Ukraine is likely to be out for a year, we almost have to think about corn being above $8.00, and soybeans would hang between $15.00 and $18.00,” predicted Basse.

 

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