Friday, March 11, 2022
CapitalPress.com 3
Crisis in Ukraine
Wheat prices spiral;
analysts predict
continued volatility
By MATTHEW WEAVER
Capital Press
Matthew Weaver/Capital Press File
Analysts continue to keep a close eye on Russia’s invasion of Ukraine. The two nations account for 29% of world
wheat exports.
Russia/Ukraine wheat exports uncertain
By CAROL RYAN DUMAS
Capital Press
About 29% of the world’s wheat
exports are at risk as the Russian inva-
sion of Ukraine continues, an analyst
says.
“A signifi cant amount of wheat
comes out of there. For reference,
the U.S. last year was 13.3% of the
world’s exports of wheat,” said Ste-
phen Nicholson, global grain and oil-
seed strategist with Rabobank.
So the concern is “where do we
come up with that wheat, and that’s
really where the challenge is,” he said.
Russia and Ukraine don’t maintain
large stockpiles of wheat and ended
2020-21 with about 4.5% of world
stocks.
There are not enough stocks in
other exporting countries to make up
for the loss of exports from Russia and
Ukraine, he said.
“So that’s a real, real concern and
why the wheat market was so quick to
react,” he said.
Grain and oilseed markets were
already in a rally and moving much
higher. Russia’s invasion of Ukraine
“just really kind of adds fuel to the
fi re,” he said.
In addition to signifi cant wheat
exports, Russia and Ukraine account
for 31% of world barley exports, 19%
of corn exports, 23% of canola exports
and 78% of sunfl ower exports, he said.
Russia and Ukraine have already
shipped a lot of wheat this winter, he
said, so it’s not like markets have to
fi ll the gap for the whole year.
But those countries’ signifi cant
exports are “certainly why the wheat
market has gotten so concerned and
so, you know, up in arms over what’s
going on here,” he said.
It adds to the volatility that’s
already in place, and he urged market
players to be ready.
“Particularly for sellers and buy-
ers, it gives you opportunities on both
sides. It’s probably more likely to
favor the sellers. But the fact is you
are going to see a lot more volatility,”
he said.
Buyers are going to have to think
about where they’re going to do busi-
ness, he said.
“We’ve already seen several things
happen in the Black Sea region.
We’ve seen ADM and Bunge shut
down some of their operations in the
Black Sea region,” he said.
The question is whether those
companies go back to the region and
whether they’re willing to put up with
the issues of doing business there, he
said.
Buyers will have to consider
whether they want to put their supply
chain in danger, whether it’s because
they’re not sure it’s going to get there,
whether it will be available or whether
there will be a force majeure and they
won’t be able to get what they want,
he said.
In addition, the costs of freight out
of that area are getting really high, he
said.
The U.S., South America, Argen-
tina, the European Union and Austra-
lia are all going to see an increase in
their wheat exports, and the U.S. will
also see an increase in its corn exports,
he said.
In addition to wheat exports from
Russia and Ukraine, he’s also con-
cerned about this year’s wheat pro-
duction in those countries. He won-
ders whether farmers there will get
fi nancing given all of the sanctions.
He also thinks about those coun-
tries’ farmland as battlefi elds, and
some of that ground won’t be avail-
able, he said.
“And it just is a challenge I think
overall … it’s a challenge putting in a
crop anywhere in the world, let alone
in the middle of a confl ict,” he said.
Russia/Ukraine situation has
implication for fertilizer markets
By CAROL RYAN DUMAS
Capital Press
Russia’s invasion of
Ukraine is making a lot peo-
ple anxious about fertilizer
production in what is already
a tight market.
“There’s really two pil-
lars of impacts that you can
see from the kind of Belar-
us-Ukraine-Russia nexus on
the global fertilizer market,”
said Samuel Taylor, input ana-
lyst with Rabobank.
The fi rst is the production
and exports that come out of
the region. The second is the
fl ow of natural gas from Rus-
sia to other areas for the pro-
duction of fertilizers such as
nitrogen, he said during a web
conference on Tuesday.
“We saw this, this sec-
ond pillar, impact European
ammonia and nitrogen pro-
duction in the second half of
last year, particularly in Q4,
and how that has driven the
market since then,” he said.
Russia and Belarus, a close
ally, have an outsized position
in global production of certain
fertilizers, he said.
Those two countries
account for about 40% of
global potash exports, and
Russia is a signifi cant player
in phosphate and nitrogen
markets, he said.
Russia accounts for about
22% of global exports of
ammonia, the base product
for further upgrades into dif-
ferent nitrogen fertilizers, he
said.
“But it also accounts for
about 14% of global exports
of urea and about 14% of
global exports of a specifi c
phosphate called MAP —
mono-ammonium phosphate
— which is keenly used in
global production of soy-
beans,” he said.
Russia and Belarus also
account for 45% of global
exports of fertilizer-grade
ammonia nitrates, which is
not as widely used in global
agriculture as ammonia, urea,
phosphate or potash, he said.
“The other thing to really
consider is the stickability of
supply chains of a lot of these
products,” he said.
Urea, being a dry good,
has greater fl exibility to be
shipped or relocated versus
ammonia, he said.
“One of the interesting bits
about ammonia is it’s trans-
ported by a pipeline from Rus-
sia (through eastern Ukraine)
down into the Black Sea, and
that has actually been shut
off ,” he said.
That’s a market where
Rabobank sees a greater risk
of volatility, albeit from a
very high price base at the
moment, he said.
“One of the other points to
consider is the broader ramifi -
cations of the geopolitics that
have led us to the current fer-
tilizer price in existence. One
of the big (variables) in the
market is the Chinese re-en-
tering the trading market for
urea and phosphates,” he said.
In the past, China has oscil-
lated somewhere between
10% and 20% of global
exports of urea. It’s antici-
pated China will re-enter the
market in mid-year or the sec-
ond half of this year, he said.
“So this could be a poten-
tial risk-mitigant in a tighten-
ing balance sheet on the urea
side,” he said.
The other thing to con-
sider is certain areas have an
outsized exposure to the Rus-
sia-Belarus fertilizer market,
he said.
Brazil, with nutrient-hun-
gry soil and no strong
domestic fertilizer produc-
tion, gets 46% to 47% of its
potash imports from Russia
and Belarus. It’s also very
exposed when it comes
to urea and MAP, getting
27% and 30% of imports,
respectively, from Russia,
he said.
The Willamette Valley’s
Biological Hub
Since 1981
Commodity prices made
the biggest jump in 50 years
last week, and wheat market
analysts say the future remains
unclear.
“This is far from normal,”
said Darin Newsom, a market
analyst in Omaha, Neb. “We
have an extremely volatile sit-
uation right now where ... the
heaviest-traded futures con-
tract and the heaviest-traded
market can’t fi nd a way to
trade.”
The Chicago Mercantile
Exchange Group on March
7 increased its daily limit to
85 cents per bushel, with an
expanded limit of $1.30 per
bushel.
That means the Chicago
and Kansas City wheat mar-
kets have a $1.30 daily limit,
so prices could go up or down
a maximum of $1.30 a bushel,
Newsom said.
If the market does not reach
that limit today, it will drop
back to 85 cents, Newsom
said.
In its announcement, the
CME Group said the amended
daily price limit will continue
until the next regularly sched-
uled daily price limit reset in
May.
Russia’s
invasion
of
Ukraine takes 29% of global
wheat production out of the
picture, and the world is try-
ing to fi nd a new equilibrium
price, Newsom said.
The market could trade
higher than daily price lim-
its allow, said Byron Behne,
senior merchant at Northwest
Grain Growers in Walla Walla,
Wash.
The May 2022 wheat
futures price on the Chicago
market is $12.94 per bushel.
On Feb. 17, the May price was
$7.81, an increase of $5.13 in
three weeks, Behne said.
“We’ve never seen any-
thing like this before in
this amount of time,” he
said.
The volatility will likely
continue until there’s a
ceasefire agreement or the
war ends, Behne said.
“Prices are at least
probably $3 per bushel too
high,” he said. “It won’t
take very much time at all
to take that back out of the
market. In the meantime,
though, I don’t know,
futures could run up to
$15, $20. There’s really no
limit as to how high that
could go.”
That’s driven by outside
investors who buy wheat
futures to diversify their
portfolios, he said.
The May 2023 wheat
futures price is $9.09 per
bushel, said Dan Steiner,
grains merchant at Mor-
row County Grain Grow-
ers in Oregon.
“What the market is try-
ing to do is say, ‘Eventu-
ally this thing will get over
with,’” he said.
The U.S. wheat supply
is “more than adequate,”
but the world wheat sup-
ply is “tenuous at best,”
Steiner said. Major import-
ers still need product, but
there’s less market access.
Higher prices for fuel
and cereal grains are part
of demand destruction,
Steiner said.
“Unless you increase
the supply ... you have to
destroy demand, and the
only way you’re going to
destroy demand is to jack
the price up or wreck the
economy,” he said. “Peo-
ple are going to have to
change their diet, because
there simply will not
be enough grain, espe-
cially if this thing goes
long-term.”
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