Grain market panic over Ukraine war

04 March 20223 min reading

The Russian offensive into Ukraine has increased the supply risk for grain markets.  The war has shut down grain exports from the Black Sea, and the Sea of Azov ports. The price of wheat rose to its highest levels in more than a decade as the world’s key wheat producers are at war.

Russian offensive against Ukraine has increased the agricultural commodity prices sharply in global markets. Wheat futures in Chicago surged 23% in February, and corn and soybeans were both up about 10%.

The war in Ukraine comes at a moment when global food markets are already struggling with soaring prices, supply-chain disruptions and the continuing fallout from the COVID-19 pandemic.

Russia and Ukraine are top exporters of wheat and other grains. Almost 10 percent of world grain production comes from Russia, while Ukrainian production accounts for 3 percent of world production. Russia is the world’s largest exporter of wheat. And Ukraine is the world’s fifth-largest exporter of wheat.

The conflict between the two countries could trigger food shortages and drive up food inflation in countries dependent on wheat imports from Russia and Ukraine. Some of the world’s top importers of wheat are heavily dependent on wheat sourced from Russia and Ukraine.

“Availabilities in main exporting countries remain at multi-year lows. Any potential drop in supply from the Black Sea region will thus be difficult to compensate from other origins," warned the Agricultural Market Information System (AMIS).  “As the world’s largest and fourth-largest exporters of wheat, the Russian Federation and Ukraine are critical players to ensure the food security of numerous countries around the world. Any serious disruption of production and exports will further escalate prices and erode food security for millions of people who are already under stress given very high levels of food inflation in their countries.”

Apart from these immediate implications, the crisis also risks having negative repercussions for next season's harvest as it could affect supplies and prices of natural gas and fertilizers, for which the Russian Federation is a key exporter. As farmers prepare for the new planting season, soaring input prices could result in lower yields, lower quality production as well as a lower acreage being planted.

“It is still too early to fully comprehend the implications of the crisis on agricultural markets. These will critically depend on the degree of disruption, the length of the conflict as well as the type and severity of countermeasures being put in place,” AMIS highlights.

Experts warn that the war may disrupt Ukrainian farming, and create a more long-term disruption to world wheat production in an already tight global market. “Spring grain planting is right around the corner for both [Russia and Ukraine], most importantly corn for Ukraine and spring wheat for Russia, and it is unclear whether the ongoing conflict will impact production either physically or economically” Reuters columnist Karen Braun indicates.

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