Russia-Ukraine rift risks 13pc of global grain exports

Rising tensions in the Black Sea have boosted concerns over supply availability and crop prices in the global agricultural markets, as a possible military move from Russia against Ukraine could disrupt up to 13pc of global corn and wheat exports from Ukraine.

The wheat market could be affected the most, amid an already tight global balance sheet this marketing season following lower production and quality issues in key exporting countries, with Ukraine covering about 12pc of the world’s wheat export requirements, according to US Department of Agriculture (USDA) data (see chart).

Wheat exports from Ukraine — the fourth-biggest exporter of the product in the world — have reached 16.7mn t since the start of the 2021-22 marketing season, with the USDA forecasting the country’s total 2021-22 wheat exports at 24.2mn t.

This exposes 7.5mn t of Ukrainian wheat to a risk of non- or delayed delivery in the remainder of this marketing year if there is a military conflict between Russia and Ukraine. At the same time, global importers would be forced to switch to purchases from other destinations, such as the EU, the US, Argentina and Australia, where wheat volumes available for exports in 2021-22 are already limited.

Russian wheat exports could also fail to reach the global market this marketing season if logistics are paralysed at Black Sea ports and Russia is suspended from global financial systems such as Belgium-based financial transaction communication network Swift.

Russia — the world’s second-largest wheat exporter — had shipped about 23mn t of wheat by 20 January, with overall 2021-22 exports projected at 35mn t. The country could export up to 2mn t by mid-February, when an 8mn t export quota for shipments over 16 February-30 June comes into force.

In addition, disrupted logistics at Black Sea ports could also affect wheat exports from neighbouring Romania and Bulgaria, as well as Kazakhstan, which deliver some wheat exports through Black Sea ports.

These concerns are providing support to global wheat prices, with the Euronext and Chicago wheat futures contracts rising actively. Meanwhile, Black Sea wheat prices are struggling to increase on a spot basis, amid muted demand from global importers, who have stepped back from purchases from the region in light of uncertainty over future exports (see chart).

Wheat futures prices on the Chicago Board of Trade (CBOT) and Euronext rose by more than 15pc and 6pc, respectively, in March-May 2014, amid a military conflict between Russia and Ukraine after Crimea’s annexation. Fob prices for Russian and Ukrainian milling wheat then increased by 5-6pc, but the global market saw no export disruption from Ukraine or Russia in 2014.

In contrast, prices for Ukrainian new-crop wheat are now gaining support despite the relatively good conditions of winter crops on concerns that 2022-23 production could be jeopardised if there is extensive military action across the country.

Global corn supplies could also be at risk of tightening this marketing season if any export disruptions from Ukraine occur, as the country is the world’s fourth-largest exporter of the product, accounting for over 16pc of global exports, according to the USDA.

Ukraine has already exported 14.3mn t of corn since the start of the marketing year in July, which leaves about 19.2mn t of product available for exports in the remainder of the season, under a 33.5mn t export forecast for the USDA.

A potential “loss” of about 9pc of global corn supplies — equivalent to Ukrainian crops remaining to be exported this season — amid downward revisions of Argentinian and Brazilian 2021-22 corn production estimates has already supported global corn prices (see chart).

Ukrainian corn prices are also rising but at a slower pace than futures prices, with global importers cautious to book volumes for far-month shipments but still showing some buying interest for spot and March shipments amid a lack of alternatives.

Ukraine and the US will remain the two main corn suppliers on the global market at least until late March-April, when Argentinian new-crop corn hits the market, while Brazilian supplies are expected to be available for global importers only in July.

In this context, corn prices in China — the world’s largest importer of product and the biggest buyer of Ukrainian corn — have started to increase, amid concerns that Ukraine may fail to deliver or delay the delivery of already contracted volumes.

Still, Chinese buyers are reluctant to switch to corn purchases from the US immediately owing to less competitive prices of US corn at about $345/t cfr for March shipment, compared with Ukrainian corn at $337-338/t cfr.

Corn futures prices on the CBOT and Euronext rose by about 10pc in March-May 2014, while fob prices for Ukrainian corn increased by 11pc over the same period.

Ukraine share in global grain exports pc

Global largest wheat exporters mn t

Global largest corn exporters mn t

Argus Media

Tags: Ukraine, Russia, corn, export, Production, wheat, Black Sea, tensions