Markets

Ukraine, Russia, Unstable Ag Markets

Although a distant second for now to the humanitarian disaster introduced on by the Russian invasion of Ukraine, the market volatility occurring together with it has many frightened about how rising commodity costs will have an effect on these outdoors of the area.  

As is well-known, Ukraine is a powerhouse producer and exporter of some key agricultural merchandise. The nation is a market mover within the crops and international locations during which it trades, so disruptions within the Ukrainian market are having ripple results internationally. The rising world concern is that the extended absence of Ukrainian merchandise on the worldwide market will result in extra struggling within the type of meals value crises in international locations in a roundabout way concerned within the battle. We dig in right here.

Ukrainian Agriculture

Ukraine is a big producer and exporter of agricultural merchandise. In 2021, Ukraine exported greater than $27 billion in agricultural merchandise to the world. Ukraine’s high export markets have been the 27 nations that now comprise the European Union (EU-27) at $7.6 billion, China at $4.2 billion, India at $2 billion, Egypt at $1.5 billion and Turkey additionally at $1.5 billion. These high 5 markets accounted for greater than 60% of Ukraine’s agricultural exports. Ukraine has six major merchandise with over a billion {dollars} in export gross sales: corn ($5.8 billion), sunflower seed ($5.7 billion), wheat ($5.1 billion), rapeseed ($1.7 billion), barley ($1.3 billion) and sunflower meal ($1.2 billion). Mixed these high six merchandise accounted for greater than 77% of Ukraine’s agricultural exports.

Because the assault on Ukraine stretches on, the impacts to Ukraine’s means to provide the amount of tradeable commodities the worldwide market has grown to rely upon will turn out to be extra vital. A considerable a part of Ukraine’s best agricultural land is in its japanese areas, precisely these components most susceptible to Russian assaults. The local weather and soils of Ukraine have been likened to that of Kansas, Minnesota and North Dakota. And as with farmers in these states, farmers in Ukraine plant most crops in April and Could, besides wheat and rapeseed, which have been planted in September and October and at the moment are within the progress section.

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Not solely will an ongoing battle doubtless result in fewer planted acres, however additionally it is prone to change the combo of crops that can be planted and harvested. With a heightened concentrate on feeding the Ukrainian individuals, it’s doubtless that farmers can be inspired to plant and harvest crop cereals supposed for native consumption, reasonably than corn, sunflower seed and rapeseed for export. As reported by Reuters, Denys Marchuk, deputy head of the Ukrainian Agrarian Council, advised native tv, “The emphasis can be on spring crops that can be harvested in the summertime, as a result of we have no idea what the scenario can be (going ahead). For the complete diet of its inhabitants and the armed forces, extra emphasis can be positioned on buckwheat, peas, these forms of crops that may make it attainable to reap in order that Ukraine is totally supplied with meals.”

Within the case of crops but to be planted, in addition to the wheat and rapeseed crops already within the floor, farmers can be challenged to search out gasoline for his or her equipment and fertilizer for his or her fields, which can doubtless scale back the whole harvest on planted acres. It can’t be underscored sufficient that Ukrainians are underneath mortal risk; the scenario goes properly past disruptions to enterprise as regular for Ukraine’s farmers. Predicting what and the way a lot can be planted by farmers dwelling in each day concern for his or her lives feels insensitive, however a deeper understanding of Ukraine’s high export crops may also help clarify the intense market volatility of the final a number of weeks and potential dangers to the bigger world.

Corn

Ukraine is the world’s seventh-largest producer and fourth-largest exporter of corn, accountable for 13% of worldwide exports within the 2020/21 rising 12 months. The crop is predominantly grown within the northern half of the nation, with a focus within the northeast, (together with Chernihivska, Sumska and Poltavska, seen on the map beneath) the place roughly 35% of the nation’s corn is grown.

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Ukraine exported greater than $5.8 billion in corn to the world in 2021. China ($1.9 billion) and the EU-27 ($1.8 billion) have been the highest two locations for Ukrainian corn, accounting for greater than 60% of corn exports. Ukrainian corn growers are commerce dependent; over the 17/18 – 20/21 commerce years an unimaginable 80% of Ukraine’s corn manufacturing was exported. Regardless of comparable rising seasons, Ukrainian corn is exported primarily between November and Could, whereas U.S. corn exports are strongest between March and June. For the worldwide market that implies that comparatively giant shares of commerce 12 months 21/22 Ukrainian corn stay caught in-country after the closure of Ukraine’s Black Sea ports. The March WASDE estimated Ukraine corn exports at 27.5 million metric tons. Based on S&P World Ukraine had exported 18.98 million mt as of February 23. Because of this there are over 8.5 million mt nonetheless remaining to fulfill the USDA’s export estimate for this advertising 12 months. There was dialogue of using Ukraine’s state-run rail system to maneuver the 8.5 million metric tons of Ukrainian corn to borders with Romania, Hungary, Slovakia and Poland, from the place the grain will be delivered to ports and logistics hubs of European international locations.

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The Chinese language and European markets are as reliant on Ukrainian corn imports as Ukrainian corn farmers are on these export markets. In 2019, the EU-27 imported $4.6 billion in corn from the world, 63% of which was sourced from Ukraine. Brazil was a distant second, supplying 20% of the EU’s corn market. In 2021, China imported practically $8 billion in corn from the world. The U.S. was China’s largest provider in 2021 with 70% of the market, however Ukraine was nonetheless a big provider. China imported 29% of its corn crop from Ukraine in 2021, valued at greater than $2.4 billion. Lately, Ukraine commanded a bigger share of China’s corn imports. Over the 2016-2019 interval, Ukraine’s market share averaged 77%.

Wheat

Ukraine is the world’s eighth-largest producer and sixth-largest exporter of wheat, accountable for 8.5% of worldwide exports within the 2020/21 commerce 12 months. The crop is predominantly grown within the southern/southeastern parts of the nation. Ukraine’s wheat rising season is just like the winter wheat rising season in america, with planting occurring in September and October, progress all through the winter and spring and harvest occurring in July and August.

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Ukraine exported practically $5.1 billion in wheat to the world in 2021. High locations for Ukrainian wheat are fully completely different than that high locations for Ukrainian corn. In 2021, the highest locations have been Egypt ($858 million), Indonesia ($727 million), Turkey ($445 million), Pakistan ($353 million) and Morocco ($232 million). These high 5 markets accounted for practically 50% of Ukraine’s wheat exports. In contrast to the U.S. wheat export marketing campaign, which is regular all year long, Ukrainian wheat is primarily exported between August and November.

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Along with the numerous manufacturing and exports of wheat in Ukraine, Russia is a good bigger provider. Within the 2020/21 commerce 12 months, 20% of the world’s wheat exports got here from Russia. Collectively, these two international locations accounted for practically 30% of the globe’s wheat exports. Russia’s export marketing campaign is extra like Ukraine, starting in August, however stretching longer, into February. Because of this each Ukraine and Russia have accomplished the majority of their commerce 12 months 2021/22 wheat exports.

In response to Russia’s invasion of Ukraine, a number of Western international locations have launched a sequence of measures to attempt to hobble the Russian financial system. Many Western governments, together with america, have imposed strict sanctions on Russian banks, elites and exports, and main worldwide corporations have suspended their Russian operations. In retaliation, on March 10, Russia introduced a ban on exports of telecom, medical, auto, agricultural, electrical and tech tools, in addition to some forestry merchandise, to about 48 international locations that have “dedicated unfriendly actions” towards Russia, together with the U.S. and the EU, till the top of 2022. Russia exported greater than $7.1 billion in wheat to the world in 2021. Whereas the export ban could also be vital for some merchandise, like fertilizer, which can be mentioned beneath, solely 6.2% of Russia’s 2021 wheat exports have been to international locations “responsible” of committing “unfriendly actions.” Nonetheless, just a few days later, on March 14, Russia introduced a short lived ban on the export of wheat, rye, barley and corn to Eurasian Financial Union nations, which embrace Armenia, Belarus, Kazakhstan, and Kyrgyzstan, ex-Soviet international locations. This short-term ban is critical as a result of these 4 international locations are all ex-Soviet international locations, however solely 4.1% of Russia’s 2021 wheat exports have been to the EEU. So, whereas Russia represents a good portion of worldwide wheat exports, the specter of Russian wheat export disruptions would be the results of decrease manufacturing from diverted sources and/or bodily harm as a consequence of army motion by the first rising area, which borders Ukraine, not the export ban as it’s at the moment outlined.

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Vegetable Oils

Ukraine is the world’s largest producer and exporter of sunflower seed and its merchandise, accountable for 47% of worldwide exports within the 2020/21 commerce 12 months. The crop is predominantly grown within the japanese half of the nation. Ukraine’s sunflower crop is planted in April and Could with a September and October harvest.

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Ukraine exported practically $5.7 billion in sunflower oil to the world in 2021. High locations for Ukrainian sunflower seed oil have been India ($1.9 billion), EU-27 ($1.7 billion), China ($872 million) and Iraq ($313 million). These high 4 markets accounted for greater than 85% of Ukraine’s sunflower seed oil exports. The export marketing campaign for sunflower seed oil is regular all year long aside from August and September. Like corn, which means that numerous exportable sunflower seed oil stays in Ukraine. This product will cling over the market within the coming months, with sunflower seed oil costs doubtless various significantly on rumors of motion and high quality of exportable Ukrainian provides. Lowered world sunflower seed oil commerce will proceed to exert upward strain on substitute vegetable oils, like soybean oil.

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Along with the numerous manufacturing and exports of sunflower seed oil in Ukraine, Russia can also be a big provider. Within the 2020/21 commerce 12 months, 29% of the world’s sunflower seed oil exports got here from Russia. Collectively these two international locations accounted for over three-quarters of the globe’s sunflower seed oil exports. Like wheat, Russia’s exports of sunflower seed oil are predominantly to international locations that won’t be impacted by Russia’s export ban. Solely $12.2 million, merely 0.5%, of Russia’s $2.4 billion in sunflower seed oil exports in 2021 have been to international locations “responsible” of committing “unfriendly actions.” Once more, whereas Russia represents a good portion of worldwide sunflower seed oil exports, the specter of export disruptions from Russia would be the results of decrease manufacturing from diverted sources and/or bodily harm as a consequence of army motion by the first rising area, which borders Ukraine, not the export ban as it’s at the moment outlined.

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Fertilizer

The provision and value of fertilizer has been a high concern of farmers all over the world for months. Russia’s invasion of Ukraine has solely sophisticated already difficult world fertilizer markets. Western sanctions and Russia’s retaliatory export ban have taken Russia, a big producer and exporter of fertilizer, out of many international locations’ markets. Russia is a serious world participant in all three vitamins that compose fertilizer: nitrogen, phosphate and potassium. Russia is the world’s largest nitrogen exporter, supplying 16.5% of worldwide nitrogen exports in 2018, the newest 12 months for which information is accessible. Russia is the world’s third-largest phosphate exporter with a 12.7% share of worldwide phosphate exports in 2018. Russia is the world’s third-largest potassium exporter as properly, supplying 16.5% of worldwide potassium exports in 2018. In contrast to the scenario described above with respect to wheat and sunflower seed oil, Russia is a big supply of fertilizer imports for lots of the international locations on the “unfriendly” listing. Fertilizer is a extremely traded, world commodity. Forty-four % of all fertilizer supplies are exported. The division of the world’s fertilizer importers, that are mainly all counties that develop something, into two teams – these which might be “pleasant” and people which might be “unfriendly” – will make accessing fertilizer costlier and tougher.

Vitality

The big affect Russia has on vitality markets is well-known. Russia is the world’s third-largest oil producer, the second-largest crude oil exporter and the biggest exporter of oil. Russia is the second-largest pure gasoline producer, after the U.S., the second-largest exporter of pure gasoline in gaseous state and the fifth-largest exporter of liquified pure gasoline in 2019.  Vitality is large enterprise to Russia. Based on an article from The Related Press, earlier than the invasion, Russian oil and gasoline made up greater than a 3rd of presidency revenues.

So far, Russia’s listing of banned exports doesn’t embrace vitality merchandise, however that doesn’t imply Russia’s vitality exports have continued on unaffected. Due to Russia’s invasion of Ukraine, many Western international locations (a few of these “unfriendly actors” Russia is upset about) have sanctioned Russia’s largest banks, its central financial institution and finance ministry, and moved to dam sure monetary establishments from the SWIFT messaging system for worldwide funds, which has made Russia’s commerce of vitality tougher and costly. Final week, the U.S. introduced a ban on Russian vitality. Although Russia solely made up about 3% of U.S. oil imports final 12 months and the U.S. doesn’t import Russian pure gasoline, the transfer was seen as an act essential to isolate Russia economically. Allies in Europe have introduced plans to turn out to be much less depending on Russian vitality, although that transition will take time. Europe isn’t a big producer of vitality and relies upon closely on imports. Russia provides 40% of Europe’s gasoline and 25% of its oil.

Russia will play numerous video games within the vitality markets within the coming weeks and months. Anticipate an prolonged interval of disruption. And since pure gasoline accounts for 70-90% of the price of nitrogen fertilizer, that market will proceed to commerce in turbulent waters for a while to return as properly.

Infrastructure

Past the markets mentioned above, a important piece of the Ukraine puzzle would be the stage of harm that its infrastructure sustains through the Russian invasion. As soon as the combating has concluded, in what situation will they discover their roads, bridges, rail traces and ports? Important harm to any section of infrastructure will make shifting individuals and merchandise extra time consuming and costlier.

World Meals Costs – The place it All Comes Collectively

The world has been justifiably centered on the plight of Ukraine’s residents, however as Russia’s assault wears on, there was a rising concern in regards to the influence on individuals past Ukraine’s border due to elevated world meals costs influenced by diminished world provides of wheat, corn and sunflower seed oil. The Meals Worth Index (FFPI) from the United Nations’ Meals and Agriculture Group is a measure of the month-to-month change in worldwide costs of a basket of meals commodities. The FFPI measures value adjustments for 5 commodity teams relative to 2014-2016. These 5 commodity group value indices are then weighted by the common export shares of every of the teams to present an general change within the general market basket. The FFPI is launched every month, permitting policymakers a real-time barometer of the worldwide market.

The FFPI adjusted for inflation averaged 137.6 factors in February 2022, up 5.2 factors (3.9%) from January and as a lot as 21.6 factors (18.7%) above February 2021. Based on the FAO, this represents an all-time excessive. The FAO Cereal Worth Index adjusted for inflation, which incorporates wheat, corn, sorghum, barley and rice, averaged 141.7 factors in February, up 4.1 factors (3%) from January and 16.2 factors (12.9%) from February 2021. In February, costs of all main cereals elevated from their respective values final month. Along with corn and wheat mentioned above, Ukraine can also be a big exporter of barley.  The FAO Vegetable Oil Worth Index adjusted for inflation, which incorporates palm, soybean and sunflower oil, averaged 197.3 factors in February, up 15.4 factors (8.5%) from January and 15.4 factors (34.5%) from February 2021.

With the scenario in Ukraine persevering with to unfold, it’s unlikely that the upward trajectory of meals costs is over. And as costs rise, increasingly more individuals all over the world can be challenged by meals insecurity. Allow us to be part of within the refrain for peace in Ukraine.

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