CHESTERFIELD, Mo. — Ukraine and Russia are both major players in the grain export arena, and questions continue regarding production, supplies and prices.
Corn and soybean prices have closed in on 2012 drought levels, and wheat is pushing toward the all-time high set in March 2008.
Stephen Nicholson, Rabobank global grain and oilseed strategist, compares the current price action to a drought market.
“It’s different than a drought because we don’t know the span, but think about how a drought market spikes and then it sets back as it kind of gets used to what’s going on and kind of digests that smaller crop, smaller stocks and gets used to it,” said Nicholson in a Rabobank press call March 1.
“This is a little like that. We’re seeing a huge spike. We will see a setback, but likely see it set back at a higher level than what we might have done had this conflict hadn’t happened.
“Prices are going to be extremely volatile. The question is how long and how high and we won’t know that until we will.”
Russia and Ukraine combined represented 27.6% of the world’s wheat exports. The five-year average is about 29% from those two regions. For reference, the United States last year was 13.3% of the world’s wheat exports.
“So, you can see how significant it is and why wheat is really where the action is and where the concern lies,” Nicholson added.
Russia and Ukraine also export about 31% of the world’s barley, 19% of the world’s corn, 23% of the world’s rapeseed or canola and 78% of the world’s sunflower oil.
“When you peel that back a couple more layers, you get a little concerned from a wheat perspective about where do we come up with that wheat. That’s really where the challenge is,” Nicholson said.
“When you look at world stocks, Russia and Ukraine don’t carry many stocks of wheat. They either use it domestically or it is shipped out and there’s not much left at the end of the year. In 2020-2021 they only carried about 4.5% of the world’s wheat ending stocks. The U.S. had almost 8% of the world’s wheat ending stocks.”
“So, if you take Russia and Ukraine wheat out and you think that means there’s a lot left, but if you look at the stocks of the other exporters in the world there are not enough stocks left to make up that loss of exports from Ukraine and Russia. That’s a real concern and why the wheat market was so quick to react because there’s just not enough stocks in the exportable countries to make up that loss of Russia and Ukraine exports.
“Russia and Ukraine have already shipped quite a bit of wheat, corn and barley this year, so it’s not like we have to make up the whole year for the rest of the year, but it is why the wheat market has gotten so concerned and so up in arms over what’s going on here.”
From a global perspective, there are further concerns going forward.
“This just adds to the price volatility already in place, and so be ready. I think, particularly for sellers and buyers it gives you opportunities on both sides, probably it more likely favors the sellers. But the fact is you are going to see a lot more volatility as we’ve seen particularly in the energy markets,” Nicholson said.
Buyers are going to have to think about where they are going to do business. ADM and Bunge shut down some of their operations in the Black Sea region.
“The question is do those companies go back to that region, are they willing to kind of put up with the issues of doing business there which has become extremely difficult,” Nicholson continued.
“Buyers around the world are going to have to think also do I want to put my supply chain in danger, whether it’s because I’m not sure it’s going to get there, not sure it’s going to be available, or will I not be able to get what I want.”
There are also shipping issues with higher freight and insurance costs.
Russia and Ukraine are also large sunflower oil exporters, with 8 million and 6 million hectares now under production, respectively.
“Most of that goes to Asia to countries such as India, Southeast Asia and part of the Middle East. They are going to have to find other alternative oils. That’s going to be a challenge because we’ve seen vegetable oils very tight around the world because of demand for renewable diesel and the biofuel/biodiesel industry,” Nicholson said.
“That’s going to put a lot more pressure on palm oil, but palm had its production issues. We don’t see palm production rising because plantations are old and haven’t been replanted over the last several years.”
Turning back to wheat, where are those exports that were from Ukraine and Russia going to come from?
The United States, South America, Argentina, European Union and Australia, where there was a record crop this year, will all see an increase in wheat exports. The United States is also expected to see an increase in corn exports.
“The other thing that I’m concerned about will be production in Ukraine and Russia. One, because of all the sanctions what’s the financing situation going to be for farmers. Is it already in place? Are they able to get it this spring? With farmland as battlefields some of that ground just won’t be available. It’s a challenge putting a crop in anyplace in the world, let alone in the middle of a conflict,” Nicholson concluded.