By Jenny Mills, NEAFA Vice-President
As more than a month passes into the Russian invasion of Ukraine, we all pray for those impacted by the humanitarian crisis. We also ponder what the impacts on various global and domestic agricultural markets will be, given the scope of the agricultural economies in both Ukraine and Russia.
Agricultural production in Ukraine represents about 42 million acres of farm land. According to USDA, the total in the US is 391 million acres.
Ukraine is well-suited to grain crop production, with primary crops being wheat, barley, rye, sugar beets, and sunflowers. The livestock industry has concentrated considerably in Ukraine since the collapse of the Soviet Union because of declining subsidies and increased production costs.
The FAO recently published a report this past week detailing the agricultural markets in Ukraine and Russia – the link can be found at: Information Note - The importance of Ukraine and the Russian Federation for global agricultural markets and the risks associated with the current conflict (fao.org)
Russia is also a key player in the fertilizer market. Russian N, P and K exports represent 15-18% of the total global market. Ukraine does not feature heavily as a dependent fertilizer exporter, with the exception of purchases by Benin and a handful of countries in the European Union. Many countries located in Eastern Europe and Central Asia have an import dependency of well over 50 percent on Russian fertilizers, for all three ingredients. Again, with the prospect of a trade embargo on Russia's exports, or a self-imposed export restriction, the global fertilizer market would be subject to considerable disruptions. This prospect is already reflected in record urea (N) benchmark fertilizer quotations.
In regards to Ukarine’s largest crop, wheat, based on FAO’s forecasts for the ongoing 2021- 2022 season (July-June) before the conflict and on the pace of exports to date, between March and June 2022, Ukraine was expected to export approximately 6 million tons of wheat while the Russian Federation was estimated to ship 8 million tons. However, port closures in Ukraine and anticipated sales difficulties in the Russian Federation because of economic sanctions call into question whether these exports will actually be realized. While a sudden and steep reduction in shipments by the two countries could increase exports by alternate origins, such as the European Union, and potentially Canada and the United States, the potential for these exporters to fully make-up for lower shipments by Ukraine and the Russian Federation is foreseen to be limited. Indeed, wheat inventories are already especially tight in Canada and the USA following reduced harvests in 2021-2022. In addition, overlapping the most productive agricultural areas of Ukraine with possible scenarios of the territorial spread of the conflict, FAO estimates that 20 percent of winter planted areas will not be harvested as a result of direct destruction, constrained access or lack of economic resources. Furthermore, yields in other regions are expected to decline by 10 percent due to delayed or missed application of fertilizers, an inability to control eventual pests and diseases, delayed harvesting, greater postharvest losses due to labor force shortages or due to lack of storage infrastructure (FAO report, 3/25/22).
A similar story exists for the impacts on the global corn markets. Based on FAO’s forecasts before the conflict and on export data, for the remainder of the 2021-2022 season, Ukraine and the Russian Federation were expected to export approximately 14 million tons and 2.5 million tons of corn, respectively. As in the case of wheat flows, it is unlikely that these exports, or at least the large majority, will be realized. While Russia’s corn exports do not make up a significant portion of global corn trade, Ukraine’s expected corn exports in 2021-2022 were forecast to make up 18 percent of the global trade in the grain, which would have made the country the world’s third largest corn exporter. Corn supply gaps for importers could be especially relevant for China and the EU (Ukraine’s primary corn export destination), as well as for Egypt and Turkey, which on average source roughly one third of their corn imports from Ukraine. Based on 2021-2022 import forecasts and imports for the first half of the marketing year, China, the EU, Egypt and Turkey have roughly 11.5, 3.7, 4.6, and 1.6 million tons, respectively, of outstanding imports for the second half of 2021-2022. These countries will need to meet their import needs from other suppliers (FAO, 3/25/22).
How does this impact the Northeast?
Higher fuel prices at the pump
Grain markets rallied on news of the invasion
Increased sanctions in addition to the invasion created further uncertainty for fertilizer costs.
What does the future hold for fuel, fertilizer and grain prices here?
It’s impossible to say with certainty, but the market does not like uncertainty. In other words, expect a great deal of continued volatility. Time will tell what the impacts will be on input commodities to our dairy and livestock sectors. In the short term, please keep those in Ukraine, many of whom are involved with all facets of agriculture, in your thoughts.