Russia Invades Ukraine: Global Agriculture Impacts
The impact of Russia’s invasion of Ukraine continues to keep our region’s farmers and agribusinesses on their toes for the growing season.
Let’s look closely at the “Breadbasket of Europe” and the impact of what the invasion means for countries that are currently not doing business as usual.
This is an agriculturally rich area similar in size to the combined geography of North Dakota, South Dakota, and Nebraska.
Everyone! Ukraine has 24% of the world's highly fertile black topsoil. If the country does not plant nor harvest a crop in a timely fashion, that action will affect countries that rely on their exports and will indeed suffer shortages. Those effects include:
- Middle East & North African countries: large importers of wheat & barley. Ukraine is the world's largest exporter of wheat; responsible for 29% globally as well as 32% of barley exports.
- Sunflower oil might not seem like it affects your daily life but Ukraine exports 80% of the world's supply. Where do we use this oil? Cooking, cosmetic emollients and paints.
- Ukraine’s 15% global exports of corn are on par with the volume exported from Brazil and Argentina.
- Soybeans are a smaller export number, about 2%. But the South American market has started the growing season in a drought thus, every bushel counts towards global supply in 2022. Although Russia is not a major player in the global soybean market, their ally China is and we do not yet know what this might mean to markets and exports. Also, soybeans are a major source of protein in livestock feed and will have a large impact on the livestock production sector.
- Crop inputs such as potash fertilizer and UAN liquid fertilizer from Russia represent over 20% of their respective global markets. Although the US historically sources these inputs from other countries, the lack of this volume in the marketplace adds pressure to the already constrained supply chain. As demand increases, prices increase, and a large hurdle is shipping because transportation has been delayed and tenuous for several months.
- Russia’s ally, Belarus holds an additional 21% of global potash exports, thus putting that crop input into greater uncertainty.
- Natural gas from Russia drives European anhydrous ammonia as well as the global market. Anhydrous ammonia is a liquid form of nitrogen when held under pressure in storage and turns to a gas when released such as applied to a field.
- Port shutdowns on the Black Sea concern multiple countries. For example, when Black Sea wheat was unavailable on March 1, they immediately pivoted to the US to purchase.
What Does the Region Need From the US?
- A big item on that list is farm equipment. Several local retailers have stores in Ukraine, such as Titan and RDO. A large amount of equipment manufactured here are shipped to that region such as products from Agco, Amity/Vaderstad.
- Planting season for Ukraine and Russia are coming quickly. Equipment may be in transit but will it be offloaded at ports when workers are now on the front lines of a war?
- Russian exports heavily influence their economy. Without exports, the country will suffer greatly.
- Russia is also deeply dependent on international trade for finance and the rest of the world’s restrictions will affect not only the government but household levels.
A large contingency of agribusinesses has announced boycotts of Russia including John Deere, Caterpillar, and CNH Industrial.
Agco has publicly stated that they have a vested interest in supporting humanitarian efforts in the region for their employees and customers.
Agribusinesses who are suspending business in Russia include: BASF and Rabobank.
Food companies such as Nestle, Cargill, Kraft, Cocoa Cola and others are also suspending business.
Will we see empty grocery shelves in the US?
No one’s crystal ball is very clear at this point, but experts agree that the impact won’t be seen quite yet.
Supplies and products that were placed on container ships prior to the invasion have either arrived or are in transit.
The lack of a harvested crop and finished food products will be an impact that will be felt later in the year and may be easier to estimate the changes as we approach traditional harvest.
Can US farmers supply commodity crops that may no longer be readily available from Ukraine?
Several factors need to be considered:
- Commodity prices are high but so are the input prices such as fertilizer, fuel for equipment, equipment replacement parts and crop protection products. Thus, farmers must calculate their breakeven costs as closely as they can in order to make sure the crop, they’re raising is profitable.
- The upper Midwest is quickly approaching planting time as well. Decisions have been made on many seed purchases by this point in the year. If a grower decides to make a change, there may not be seed available for that particular crop because it’s not something that can be manufactured. Seed was grown in 2021 for the 2022 season and it’s a finite supply. Currently, growers would have trouble sourcing oats, barley, dry edible beans, sunflower and canola.
- A significant portion of the US wheat-growing region is facing dry to drought conditions thus affecting our ability to fill the global need completely.
- Additionally, with increased fuel costs across the country, the energy sector is looking to farmers to support them by increasing bushels of corn or soybean that can be turned into ethanol or soy diesel. That leads to a tremendous balancing act where farmers need to decide what to plant, how many acres to plant and how to care for the crop and above all, is it profitable?
- As previously mentioned, much of South America is in a drought which is negatively affecting soybean yields. With significantly fewer soybean bushels in the global supply, we could see rationing of soybeans between renewable fuels, livestock feed and other foods for human consumption.
Decisions on the farm are rarely easy.
No one knows the outcome of Russia’s invasion of the Ukraine but as you can see, we aren’t simply facing a black swan event, we’re facing an entire flock of black swans.
With much uncertainty and volatility in the market, U.S. farmers are highly encouraged to focus on their breakeven costs and cash flow projects throughout the growing season, not just at one point in the year.
Please stay tuned to more news and information as it develops for you our farmer, agribusiness and consumer audience.
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