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Ukrainian wound

13 May 20226 min reading

While we are discussing how much profit we will lose due to a disruption in supplies or the need to change something in the usual order of life, 1.25 MMT of grain loaded on boats will soon begin to deteriorate in the ports of Ukraine. We have no right to ask to refuse food for political reasons, but we can ask the UN to organize an escort for ships with Ukrainian grain.

Elena Faige Neroba
Business Development Manager
Maxigrain


Very soon, the world will begin to physically trade the new crop of 2022/23 marketing year, and if the current circumstances do not change, then another round of food inflation awaits us. Of course, Russian analysts argue that there will be no famine, otherwise it will be Russia's fault. But even the fact that bread has risen in price so much that all countries are looking for ways to consume less already suggests that the balance has been seriously upset.

Earlier, we tried to find an answer to the question of whether India can heal the Ukrainian wound. India's wheat crop was expected to reach a record high and possibly exceed 110MMT. This gave the market a ghostly hope for record exports. The Government of India was inspired by this idea and supported it in every possible way. Despite problems with the logistics and quality of Indian wheat, the Government of India held a series of meetings with representatives of the countries of North Africa and the Middle East and embarked on the path of attempts to supply wheat to this region in order to replace Ukraine. But due to the low manufacturability of production, very archaic logistics and strong dependence on climate, it is already clear that these plans are not destined to be fully realized.

To begin with, let's consider whether India can be not an occasional, but a permanent reliable supplier of wheat? Not yet.

As can be seen from the graph, even over the past 20 years, Ukraine has been a stable supplier to the world, and exports prevailed over imports, and with a constant growth trend. The population of Ukraine did not grow, animal husbandry did not develop, and with the growing volume of production, domestic consumption did not increase, making it possible to sell more and more to the world. This allowed for investment in quality and infrastructure. At the same time, India is almost always self-sufficient or even forced to import. Export here is rather an exception to the rule. The quality is not always comparable with competitors so far, and therefore wheat is traded at a discount. Strong exports amid a drought could lead India to start importing in January. 


At the same time, China and the US are seeing one of the worst conditions for winter crops, and drought could develop in Europe. The previous season for a number of European countries was a record one, but at the same time, there were quality problems. This season, we are no longer talking about records. France, Romania, perhaps even Germany, due to the drought, can get yields 15-30% lower than last year, which is barely above average. In the current conditions, when Ukraine was locked up by Russia, this is certainly not enough.

The main mistake of all those who are now looking only at the stock to use ratio is that they believe that the grain that was not taken out of Ukraine this season can be considered as carryover stocks and left in the balance. But it's not.

Grain consumption in Ukraine is several times lower than production. Ukrainian farmers could not even sow - Ukraine itself would have enough stocks for several years. But before the war, 84% was exported through ports. Now they are either occupied by Russia, or damaged, or simply blocked and shipping there is dangerous for life and cargo. Legally exporting grain and other goods from Ukraine is the number one issue for global food security. Conventionally, for an ordinary person somewhere in Lebanon, the fact that there is grain, but lies in a warehouse in Ukraine, does not make life easier.


Ukraine has done a tremendous job of reorienting logistics very quickly and realigning it towards the western borders. Europe is on the move. But the capacities for transshipment from Ukrainian to European wagons, for the accumulation of large consignments, for loading onto boats in European ports were not ready for such volumes. And given that for Romania, Poland and other countries through which Ukraine is trying to organize exports, this is also the low season, then optimism quickly dissipates. In two or three months the situation will worsen. Europe will harvest its harvest, as will Ukraine. And there will be several times more grain for transportation, storage and loading. Port capacities can't handle it. And buying grain from Russia is not only paying a fee to the Russian budget, financing the purchase of weapons and killing Ukrainians, but also a direct path to dependence on Russia, not only in terms of energy.

At the same time, Russia itself is striving to become as independent as possible from the world order and rules. The launch of our own grain exchange was the first signal. Subsequently, we may face demands to pay for grain in rubles or the practice of creating our own trade rules in order to move away from traditional norms and traditions. In fact, this is blackmail by hunger. Moreover, Russia's contribution to inflation is undeniable: quotas and duties on Russian grain have been supporting world prices for several years now. Now, globally, Russia is trying to impose its own rules of the game on everyone, but do they have the right to do so? The question is rhetorical.

Locally, the seizure of the territories of Ukraine and the ongoing military aggression disrupt not only the export of the existing crop, but also the sowing. The fact that Russia exports grain from Ukraine illegally and sells it through Crimea despite sanctions, forging documents, is no longer surprising and does not cause outrage, alas.


But the area under a number of crops in Ukraine will decrease, and due to difficulties with the delivery and application of fertilizers, the yield will be lower.

While we are discussing how much profit we will lose due to a disruption in supplies or the need to change something in the usual order of life, 1.25 MMT of grain loaded on boats will soon begin to deteriorate in the ports of Ukraine. Just think: if from 1 kg of wheat we can make bread for 4 people… That's enough to feed 5 billion people in a day! And this is only the grain that is closed in the vessels. But there is still grain in the silo, and the grain that could grow, but the war prevented this.

We have no right to ask to refuse food for political reasons, but we can ask the UN to organize an escort for ships with Ukrainian grain. And then think about investing in European port infrastructure, while Russian soldiers are trampling on bread that your children could eat.

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