Eye-popping prices for both grain and crop inputs have U.S. farmers taking a hard look at budgets in 2022. Markets ebb and flow, but war in one of the world’s largest export countries stands as a major wild card. As the battle in Ukraine stretches on, just how many crops are planted, harvested and shipped remains a guess.
“The problem is trying to forecast how long this war will go on,” says Dan Basse, president of AgResource Company. “Our thought process is as long as the West keeps sending military hardware to Ukraine, they will fight to the last man and this does go on for years, which, at that point, will cause a complete rejiggering of world agricultural trade.”
Last May, Ukraine shipped 1.8 million metric tons (MMT) of grain. But the country exported only 300,000 MMT of grain this March. While exports are picking up, thanks to new shipping corridors via rail to the eastern side of the country, it’s unlikely to deliver all the grain the world expected.
Sea ports are shut down, Russia invaders have targeted infrastructure and U.S. officials say some grain in storage has been looted. What was once a grain flood from the Black Sea is now more of trickle.
The Lost Year
In May, USDA forecast Ukrainian wheat production to fall 35% year-over-year with corn production down more than 50%.
“The costs to move grain out are really high,” says Joe Glauber, senior research fellow with the International Food Policy Research Institute. “That could be changed over time but no one is going to make the investment just to see exporting return to the Black Sea within a year or two.”
Canada, Australia and even Russia are expected to help fill global coffers. The world’s second-leading wheat producer, India, looked like a promising solution. However, in May it implemented a limited export ban on wheat shipments due to its hottest March on record. It saw yields whither by as much as 50% in parts of the country.
“India’s exports could be as low as 4 MMT based on a crop size of roughly 105 MMT,” says Jim McCormick, co-founder of AgMarket.Net. “If the crop drops below 100 MMT, the country may not be able to export anything, which makes a very tight supply situation even tighter.”
USDA forecasts the global wheat crop will decline for the first time in four years. Drought in the U.S. Southern Plains isn’t helping as harvest of the hard red winter wheat crop is forecast to be the smallest since 1963. Low stocks and new record-high wheat prices are keeping U.S. wheat exports tepid.
“It doesn’t take much of a drought or a serious weather problem to get what we call kilos-per-capita down to levels we saw in the 1970s when we were all talking about a food crisis,” Basse says. “We are there, and the question is will Mother Nature push us over the edge?”
Global Corn Adjusts
Ukraine is also a major player in corn, ranking sixth in the globe for corn production. It typically claims 15% of the global export market, so a production shortfall will create significant ramifications.
“From April through mid-May, China purchased roughly 4.5 MMT of U.S. corn; during the same dates last year, we saw net cancellations,” says Bill Nelson, chief economist at Doane Advisory Services and Pro Farmer. “It’s obvious China is at the point where it can’t originate it out of Ukraine, so they have to turn to the U.S.”
China typically imports 25 MMT of corn, he says, and it’s clear the U.S. will get a portion of that business. Brazil will benefit also, but drought and low yields are slowing shipments.
An Unknown End
“The outlook for next year remains unsettled and then by 2024, we probably have some things resolved,” Nelson says. “It looks to be a very challenging couple of years — balancing high prices against high input costs. That will demand our farmers’ best management skills.”
Will Ukrainian farmers return to significant production next year?
The regions near Russia, where much of the fighting has taken place, will need thousands of acres cleared of landmines. Availability of fuel, fertilizer and other inputs are also likely to remain a significant hurdle.
For now, experts are looking at this disruption the same way they see a drought — it’ll take a couple of years for everything to balance back out.
“Farmers plant more crops, supplies tend go up and prices will moderate,” Glauber says. “The war is causing real problems with moving anything out Ukraine, and that will be an issue for quite some time.”
What Can We Learn from WWII?
The closest example to the conflict we’re seeing in Ukraine today is from World War II when Germany occupied France, says Doane Advisory Services’ Bill Nelson. Before the occupation (1939), France was a major global wheat producer. In 1940, crops were all but lost. However, that production blip was short. “Even though fighting was ongoing and the country was occupied, farmers went back to work,” he says.
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