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Prolonged Russia-Ukraine war may push grain imports bills further

04 March 20224 min reading

“The Azov Sea is closed. Main Ukrainian terminals in Odessa & Nykolaev are closed. Russian terminals in the Black Sea are open but there are no fresh vessels going there due to war risks. Wheat export flows have stopped apart from several vessels which have been loaded in Russian Black Sea ports. Global food prices which were close to stabilization in early 2022 will continue to rise short-term.”

General Manager
SovEcon


The war between the world's two grain giants Russia and Ukraine is monitored with great concern by the grain markets. After Russia launched a military operation against Ukraine on 24th February, wheat futures on the Chicago Board of Trade surged to the highest level since 2008. It is feared that if the tension in the Black Sea is prolonged, prices will go even higher and the world could face a food crisis.

Andrey Sizov, managing director of SovEcon, one of the leading agriculture consultancies in Russia, answers Mille Magazine’s questions on the impacts of the war on the grain markets. Sizov's comments on the hottest topic in the markets are as follows:

Given the two countries’ huge share in the global grains market, how the Russian attack on Ukraine has affected the markets so far?

No new deals, export flows have stopped apart from several vessels which have been loaded in Russian Black Sea ports. Chicago rallied 25%+, and if the war is not over shortly it's not the end.

Has there been a disruption in wheat export from the Black Sea? Do you expect that grain exports from the region will remain steady in the near term?

Huge. The Azov Sea (a few minor Ukranian terminals and many Russian ones) is closed, main Ukranian terminals in Odessa & Nykolaev are closed. Russian terminals in the Black Sea are open but there are no fresh vessels going there due to war risks.

Can you share your evaluation regarding the wheat export pace of Russia since the beginning of January?

We estimate Russian wheat exports at 2.4 MMT in Jan and 2.8 MMT in February. Exports sped up ahead of the quota, Russian wheat was regaining its competitive edge fast in 2022 until recent events.

Looking for the future, what are the possible impact of the Russia-Ukraine tension on the wheat and corn markets?

Depends on how long this war will last. Optimistic scenario - it ends relatively soon (i.e. March) and will see exports flowing in several weeks. Pessimistic one - it lasts for several months which implies that Ukraine will have big problems with corn seeding - that's a very bullish scenario.

Some analysts are concerned that the war between two giant grain suppliers will cause a food crisis. Do you share these concerns?

Depends on the length of the war. But global food prices which were close to stabilization in our view in early 2022 will continue to rise short-term. Some problems for consumers in rich regions like the EU or the US and that could be a disaster for poorer countries like Afghanistan, Sudan...MENA region should be watched closely (Iran, Iraq, Syria, Lebanon...Northern African countries). During the previous interview, we talked about big risks for large food importers and since that time things have worsened substantially.

There are some claims that some Middle East countries are looking for suppliers other than the Black Sea due to the uncertainty. Are you worried about Russia could lose its market share in the Middle East?

Not really. It's commodities markets, not retail ones. When exports resume the Black Sea wheat will return to its typical markets in Turkey, Egypt, and other destinations. 

As part of agreements signed during Russian leader Vladimir Putin's visit to Beijing, China lifts restrictions on imports of Russian wheat. What are Russia’s goals regarding the Chinese market? How the deal will impact the world wheat markets?

China could become one of the top five destinations for Russian wheat when things settle. Bad news for French and Australian farmers first of all. However, I won't overestimate that fact - to serve more distant regions Russia will need to have larger corps and larger exports. It's not on cars unless current strict export taxation changes.

How is Russia's wheat production outlook? Could you share the prospect for the 2022/23 season?

The most recent Russian wheat crop forecast is 84.8 MMT (+8.9 MMT year over year)

 Ukrainian - 28.3 MMT (-3.8 MMT YoY) 

 This doesn't reflect the most recent events. Ukrainian crop is likely to be affected by the war. There are active military operations in Southern Ukraine, where the key winter wheat regions are. Wheat has been seeded months ago but right now farmers need to start to apply fertilizer application and in many cases, they couldn't do that. 

 


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