Ukraine invasion brings market highs, many questions

MCHENRY, Ill. — The Russian invasion of Ukraine was and is the major story around the globe.

For farmers and grain markets, the Feb. 24 invasion adds uncertainty and volatility to global grain markets already roiled by weather issues and worries over fertilizer prices and supplies.

“This adds one more psychological story to a long list of stories already supporting these grain prices,” said Rich Nelson, chief strategist at Allendale Inc., the McHenry-based agricultural market research firm.

As battles between Russian and Ukrainian forces raged throughout the country, Russians targeted the capital of Ukraine, Kyiv, as well as the country’s vital Black Sea ports of Odesa and Kherson.

“It’s not just the production issues we are concerned about. It’s obviously about the export situation that certainly is a discussion for corn and wheat and slightly for oilseeds there, as well,” Nelson said.

The volatility that the grain markets saw on Feb. 24 and the days following added to an ongoing rally.

“Our two-month-long rally has already been in place due to the South American issues, weather issues, along with the inflation argument, along with high energy prices,” Nelson said.

On Feb. 24 and 25, the U.S. Department of Agriculture released its outlook numbers for 2022 at the Agricultural Outlook Forum.

Concerns about fertilizer price and supply for spring planting could impact some of those numbers for U.S. farmers, Nelson said.

In early February, Russian President Vladimir Putin imposed a temporary ban on exports of ammonium nitrate fertilizer, from Feb. 2 to April 1. Russia is a major supplier of nitrogen, potassium and phosphorus fertilizers to the world.

“The fertilizer issue is a two-part concern for us — No. 1, about the acreage impact. As we saw from the USDA and much of the private trade, we are not looking for a major change in (corn) acreage, but the fertilizer argument does bring the question of whether we will get trend yields this year. So, fertilizer is an acreage and a yield issue and one of the other reasons we had this severe rally,” Nelson said.

Nelson said that rally could continue until planters roll in the U.S. Corn Belt.

“If this does continue, we could see support or stability for prices into spring. Once we turn into May, that’s probably the point where the trade gets more serious about the U.S. yield argument and perhaps we will see a little bit more of a price decrease. I would look for this to stabilize prices at these high levels, if not slightly increase them, and a general higher price environment from now until May, when we will have some arguments about summer weather,” Nelson said.

For U.S. wheat farmers, the Ukraine war brought higher prices, but even with the higher prices and uncertain wheat production and export situation in Russia and Ukraine, Nelson said he does not see wheat surging to compete for acres with corn or soybeans.

“For winter wheat, this does give us further support and obviously the Feb. 25 movement to new contract highs is certainly showing that argument. This would give us a clear discussion on higher prices going from now into spring. For those North Dakota and South Dakota farmers who do spring wheat, we are not going to see a surge in new supplies hitting. For Illinois wheat farmers, this is going to be a great environment where we expected supplies to rebuild this year, they may not rebuild as much as expected,” Nelson said.

A quick end to the war, with farmers in Russia and Ukraine moving to planting as usual, along with a wetter summer forecast, could change the picture.

“A wrap up to the Ukraine discussion and we could also see, as we get into April and May, these private weather forecasters change their tune about the summer forecast. You could also make the argument that the Federal Reserve, in the March 15 and March 16 meetings up ahead, that they may raise interest rates, maybe a half percent, maybe three quarters of a percent, so that would be another example of things we could see here,” Nelson said.