Upheaval In Ukraine Could Affect Corn, Soybean Markets

Upheaval In Ukraine Could Affect Corn, Soybean Markets

A prolonged crisis in Ukraine could roil grain markets across the globe, says Iowa State University grain marketing economist.

The political upheaval in Ukraine could result in a dip in global supplies of corn and soybeans and shake up grain markets across the globe, says Iowa State University Extension grain marketing economist Chad Hart.

INTERNATIONAL IMPACT: If Ukraine continues to have political problems, it would export less grain which would mean less supply for the world market. That tends to mean higher prices for the commodities because you have less to trade.

Ukrainian farmers have ramped up their production of corn and soybeans in recent years, most of which is exported. But recent political tensions with Russia, focused in the Crimea region and the Black Sea, could create a bottleneck that shuts down Ukrainian exports to the rest of the world. Shipping out of the ports on the Black Sea is the main avenue by which Ukrainian grain reaches international markets. If shipping traffic on the Black Sea is shut down for an extended period, Ukrainian grain will have nowhere to go, says Hart.

With less global supply, commodity prices could rise
"If Ukraine continues to have problems, it pulls supply out of the world market. That tends to mean higher prices for the commodities because you have less to trade," says Hart. That scenario has already started to play out for the price of soybeans, which has climbed in recent weeks due to the situation in Ukraine as well as continued demand in China and harvesting delays in South America, he notes.

Even as Iowa farmers gear up for planting this spring, many are keeping an eye on Ukraine. If the current crisis stretches on without a resolution, Iowa growers could step in to fill the void left by a slowdown in Ukrainian exports.

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"Ukraine is definitely on the radar screens of Iowa farmers," Hart says. "Traveling around the state, we talk about it. The bigger issue for Iowa is planning for planting season, but they're watching Ukraine to see when they want to sell the crop they have in storage now."

Events in Ukraine will have direct impact on U.S. farmers
The U.S. Grains Council on March 4 addressed the ever-changing political situation in Ukraine, outlining both the short- and long-term realities of grain trade in the region. "Events in Ukraine will have a direct impact on U.S. farmers in the international marketplace," says Tom Sleight, USGC president and CEO. "The Council is a global organization and has staff and consultants around the world representing the best interest of the U.S. grain trade."

Ukraine reported a record corn harvest in the 2013-2014 marketing year of more than 30.9 million metric tons (1.2 billion bushels). USDA projected in February that exports for the year will reach 18.5 million tons (728 million bushels).

Cary Sifferath, USGC regional director for the Middle East and Africa, who keeps an eye on Ukraine, estimates that approximately 15 million tons (591 million bushels) of this total has already been shipped, leaving approximately 3.5 million tons (138 million bushels) in projected exports between now and June. How this will be affected by the current turmoil is uncertain.

Grain shipments from Ukraine are becoming increasingly difficult
"Ports are open and vessels are loading but shipments are becoming increasingly difficult," Sifferath says. "We're seeing farmers holding grain to hedge against a devaluing currency. We hope for a peaceful and speedy resolution of Ukraine's crisis, but the instability is creating opportunities for additional U.S. exports to North Africa, the Middle East, and China."

Ukraine's winter wheat and barley were planted before the onset of the crisis, but corn planting is due to start in the next 30 to 45 days, and credit availability may become an issue. "The economic instability will affect Ukrainian farmers looking to plant this year's crop," Sleight says. "Ukraine is in a tough spot financially, and planting season is just around the corner. The Council will continue to monitor this situation closely."

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The continued unrest in Ukraine comes on the heels of the U.S. Grain Council's statement last week about the importance of strict adherence to an aggressive stewardship program for biotechnology to minimize the risk of export trade disruption. Ukraine exports corn to the European Union and China, both markets in which biotechnology approval issues currently impede U.S. corn sales. If those buyers turn to the United States, it is important that non-approved corn traits be kept out of export channels.

Biotech corn traits not approved by Europe, China are concern
The statement last week from Sleight, read in part: "It is important for all sectors of the value chain – individual farmers, technology providers, shippers and exporters alike – to recognize the potentially significant international implications of their actions… The U.S. Grains Council represents a wide variety of members across the value chain committed to maintaining an open and fair grain trading system around the world. We recognize the desire of producers to deploy new technology as soon as it becomes available. We recognize also that continued technology development is essential to achieving global food security and creating new opportunities for producers and agribusinesses...

"There is no easy solution to these conflicting goals. In the short term, we urge all stakeholders to weigh the consequences of their actions, recognize the international implications of planting and marketing decisions, and stringently adhere to their stewardship responsibilities. In the long run, we encourage all parties to join the Council in working for a resolution of the low-level presence and asynchronous approval issues, which is the solution ultimately needed to serve the common interests of producers, agribusinesses, and consumers around the world."

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