The conflict between Russia and Ukraine is shaking the future of agriculture
KANSAS CITY, MO. – Many agricultural futures hit contract highs, with some trading at nine-year highs on Feb. 23 amid fears of market disruption as Russia invades Ukraine.
Excluding the European Union countries combined, Russia is the world’s largest wheat exporter and Ukraine is two notches down just behind Australia. The United States ranks fourth after Ukraine. Together, Russia and Ukraine are expected to account for almost 30% of global wheat exports in 2021-22, according to data from the US Department of Agriculture.
Since dropping about 12¢ to 22¢ a bushel on Feb. 18 (ironically on signs of easing tensions between Russia and Ukraine), U.S. wheat futures March-December to Feb. 23 jumped over $1 a bushel, or about 13%, in Kansas City contracts, 90¢ to 99¢ a bushel, or about 12%, in Chicago, and about 50¢ to 60¢ a bushel , or about 6%, in Minneapolis. Prices have risen further from recent lows posted on February 3.
“The risk premium continues to be injected into prices despite reports that there has been no disruption to the movement of grain exports in the region so far,” said Brian Harris, executive director and owner of Global Risk Management, Tampa, Florida.
Ukraine is expected to account for 16% of global maize exports in 2021-22, after the United States (30%), Brazil (21%) and Argentina (19%). Since its precipitous fall on February 15, the Chicago corn futures market through September (old crop) 2022 had gained about 30 to 46 cents per bushel, or 5 to 7 percent, as of February 23.
Perhaps out of fear that the flow of export wheat from the Black Sea region (which includes Russia and Ukraine) and/or fear that soaring wheat prices will increase even further, the list export tenders was active. Among others, Egypt and Turkey released large tenders this week, Jordan was in the market and Algeria made a huge purchase last week. Most wheat tenders in recent weeks have been filled with wheat from the Black Sea region and/or Eastern Europe. But many trade players believe overseas buyers will have to turn at least in part to the United States if supplies from the Black Sea region are cut off.
Of course, there are other factors at work in grain markets, primarily weather-related with a dose of lingering COVID logistics grunts, albeit pale in comparison to the acute impact of the Russian situation. -Ukraine.
For wheat, drought in the southern plains of the United States is a growing concern, even though much of the crop is still dormant. At the end of February, USDA good to excellent ratings for winter wheat were mostly down from the previous month and were well below year-ago levels at 26% in Kansas (40% there). one year), 9% in Oklahoma (48%) and 10% in Texas (40%). The US Drought Monitor in mid-February showed that 72% of total winter wheat acreage was in drought, with the vast majority of that for hard red winter mostly grown in the southern plains.
Corn and soybean futures’ prices were supported by drought-reduced output in South America, as the USDA cut production and export forecasts for both crops in its latest supply report and Requirement. Many believe that the outlook, especially for soybeans in Brazil, must be even lower than the USDA forecast.
The impact of the Russian-Ukrainian crisis on the energy market has implications for corn and soybean markets, as approximately 35% of corn production in the United States is used to produce ethanol and approximately 42% of soybean oil production in the United States is destined for the biodiesel and renewable diesel sectors. Brent crude prices topped $100 a barrel this week, while U.S. West Texas Intermediate crude oil hovered between $90 a barrel, up more than 50% from a year ago.
In addition, Russia is the world’s largest exporter of nitrogen fertilizer, the supply of which in various forms has been tight for months with nosebleed prices. Fertilizer prices have moderated as winter progressed and supplies became a bit more available, but both are still far from pre-COVID levels. While Russia did not create the nitrogen fertilizer situation, it certainly contributed to it, including recently announcing that it had halted exports.
The impact of Russia’s actions against Ukraine goes well beyond grain and energy markets, with the potential to add to global inflation that was already rising due to COVID, among other economic ramifications. , social and political. And while Russia is not the economic behemoths of the United States and China, it is a major supplier of some key commodities (wheat, crude oil, fertilizer to name a few). ). Add to that the unpredictability of Russian President Vladimir Putin and there is a recipe for outsized impact, disruption and enormous market volatility.