The March 2023 edition of the AMIS Market Monitor underscores the uncertainty hanging over agricultural markets as the war in Ukraine continues.

“With no end in sight to the war in Ukraine and threats of further escalation, uncertainty continues to hang over agricultural markets. Supplies are tight. Reduced plantings in Ukraine mean that other countries will need to produce additional grains and oilseeds to help rebuild global stocks and moderate price levels,” the report said.

Although fortunate weather and a strong producer supply response has kept grain market prices from returning to early 2022 levels, tight supplies will mean greater price volatility, especially during unpredictable periods such as cropping cycles in the northern hemisphere.

“After experiencing sharp increases in the early months of the conflict, grain and soybean prices have returned to pre-war levels by the end of 2022. However, prices remain elevated and within the upper range of historical levels, as the market currently prices in a restrained flow of exports from the Black Sea, and for the next season a drastically cut grain harvest from Ukraine given the acute adversity of the production environment for next season.” AMIS noted. “While price volatility has gotten back to 10-year average levels, possible outbursts of grain price variance still need to be monitored closely as markets remain highly sensitive to weather-related and geopolitical developments,”

The war has caused significant damage to the infrastructure and logistics capacities in Ukraine, including inland transportation networks, seaports, as well as storage and processing facilities. As a consequence, these damages have significantly lowered Ukraine's exporting capacity and raised the cost of trading grain. While significant efforts have been made to compensate for some of these disruptions, solutions are frequently insufficient or only provide temporary relief. The distribution of sleeve bags, for example, has increased the country's storage capacities, which nevertheless remain inadequate. Apart from higher storage costs, sleeve bags might also lower the quality of the stored grain. Insufficient storage space also imposed economic pressures on farmers, which forced them to sell at a loss and might reduce future plantings.

The conflict has also impacted maritime trade logistics, disrupting the operations of key seaports in the global grain trade. To mitigate these challenges, the Black Sea Grain Initiative and other international programmes have been instrumental, including the promotion of alternative transportation methods, such as train and river freight through the so-called Solidarity Lanes. “However, these efforts have yet to restore the pre-war export pace and continue to be costly. In the case of the Black Sea Grain Initiative, the reduced scope in terms of port and route coverage remain limiting factors; in addition, cargo inspection times are being impacted by delays due to a reported lack of cooperation from Russian authorities.” the report said. “Shipping from Ukraine is also being impacted by high insurance costs as some reinsurers have excluded the Black Sea from coverage and banks are hesitant in financing deals from the Black Sea due to the high risks involved and fear of potential sanctions.”

As regards the near-term outlook of global grain markets, early indications point to a strong wheat output this year, which could reach the second largest on record following the all-time high in 2022. Though total production is seen retreating, following four consecutive years of growth, world prospects are buoyed by expectations of area increases in several leading producers in 2023, amid the still attractive prices.