Global grain markets impacted by events

As geopolitical events continue to affect agricultural industries, grain prices and trade are heavily impacted. As of March 2, the Kansas City May contract for hard red winter wheat closed at $10.03, and the Chicago Board of Trade May contract for corn closed just over $7.25. Both commodities closed after hitting trading limits. 

StoneX Group Inc. Chief Commodities Economist Arlan Suderman shared grain exports are blocked from all countries utilizing ports on the Black Sea, not just commodities from Ukraine and Russia. Suderman noted almost a third of the world’s wheat exports are currently “off limits.”

“Basically, with trade out of the Black Sea shut down, not many ships are willing to pay the insurance costs or risks to go into the region,” Suderman said. “This is also reducing wheat moving out of Romania, Kazakhstan and other countries which export out of the Black Sea.” 

In addition to transportation issues, many countries around the world have implemented sanctions to limit Russia’s trade and economic benefit. In fact, Russian grain exports lost access to the global bank payment system, SWIFT, which allows in dollar denominations for foreign entities. 

Global effects

The impacts to grain markets are so large because Russia and Ukraine are the second and fourth largest wheat exporting counties, respectively. Combined, they were expected to export 29 percent of global wheat exports for the 2021-2022 year. 

Ukraine is currently ranked fourth in global corn production and contributes more than 15 percent of world corn exports – the dominant supplier to China. 

As ports in the Black Sea have closed, wheat buyers around the world have been scrambling to find new sources, driving grain prices up. Farm Futures’ Jaqueline Holland reported wheat buyers are likely to run to grain supplies in the European Union, Australia and North and South America, though the situation is not as simple as it sounds. 

Drought in North America greatly impacted wheat supplies in 2021, and continued drought in South America makes it unlikely countries like Brazil and Argentina will be able to pick up slack from the Black Sea region. 

Holland projected April and May will play host to the greatest increases in grain prices. 

“While high wheat prices could deter some food demand from the global marketplace, high alternative feed prices point to a continued uptick in global livestock feed demand for wheat over the next few months,” she said. 

Australia has suffered three years of drought, though bumper crops could be a major source of exports sales. Additionally, wheat exports from India are double those of 2020-2021. 

Holland noted, “As shipments from the Black Sea remain stalled amid the ongoing military conflict and economic sanctions, Indian wheat could provide a low-cost option to Asian buyers who typically rely on Black Sea grain shipments.”

Future impacts

A report from farmdoc daily titled “Revisiting Ukraine, Russia and Agricultural Commodity Markets” noted there could be long-term impacts of the conflict. 

Authors from the University of Illinois Department of Agricultural and Consumer Economics and the Department of Agricultural, Environmental and Development Economics at Ohio State University said, “Increased volatility introduces both opportunities and challenges from a risk management standpoint. Higher prices for agricultural inputs would offset the benefit of higher corn, soybean and wheat prices for U.S. farmers to some as yet, an unknown degree.”

It is also noted Russia and Belarus are major suppliers of energy and fertilizer products, which could be impacted by sanctions.  Even if the conflict between Russia and Ukraine is resolved, planting, harvest and supply chain disruptions could continue. 

Averi Hales is a corresponding writer for the Wyoming Livestock Roundup. Send comments on this article to roundup@wylr.net.