We’ve all seen the news from Ukraine and the war updates on that front. After the Russian troop invasion in late February, some in the U.S. markets expected the war to create some ripples throughout the wheat markets due to Ukraine's status as a leading wheat exporter. And it did, just not in the places you might have expected, said Brian Liedl, director of merchandising with United Grain Corporation. Liedl was part of a panel focusing on Ukraine and export markets at the Tri-State Grain Growers Convention in Coeur d’Alene recently.
“War is always a tragedy,” Liedl said, “but today we’re referring to the economics of it. The U.S. is generally considered the ‘export of last resort’ for wheat because of several influencing factors. Our goods are getting more expensive because of labor, parts shortages, trucking and other shipping issues, and it’s hard to be competitive,” he said. “Plus, we’re already getting a premium for white wheat, because it’s the best product out there, but that doesn’t leave room for adding more price on top of that due to production costs.”
Liedl also cited declining U.S. acreage of white wheat planted, as the markets correct themselves somewhat steadily. “There’s nothing new to boost plantings,” such as GMO or biofuels production involving wheat, he said.
Randy Fortenbery, economics professor and endowed chair at Washington State University, agreed. “Countries most affected [by the Ukraine wheat export slowdown] weren’t our customers anyway,” he said. They were able to source wheat from their regular customers in Australia, Argentina and other countries. The U.S. futures price, which did spike almost immediately, came back down just as quickly, “but cash markets don’t respond to headlines immediately,” Fortenbery said, “and those futures prices respond quickly. If you didn’t sell your grain Monday [during a high], don’t expect to sell at that price on Tuesday.”
“However,” Fortenbery emphasized, “marketing by the headlines is not a marketing plan. There are a lot of tumultuous events around the globe constantly.”
Dr. Antonina Broyaka, an extension associate with Kansas State University, past dean of faculty of economics and entrepreneurship and vice-dean for research in Ukraine, gave more insight into the Ukraine economy. She reported Ukraine unemployment in December at 35%, with inflation of 45%. “More than 25 percent of the ag area is now in occupied territory,” she said, “and many laborers have left Ukraine.” She says everything, either directly or indirectly, is related to agriculture in Ukraine. Damages are estimated (as of December 2022) to be $127 billion.
“Fifty percent of the energy system is destroyed,” she said. “They [Russia] stole more than 1 million metric tons of stored grains, but also ag machinery.” Ukraine’s stored grains that were lost are equal to all of the white wheat stored in the U.S. Pacific Northwest.
Broyaka said if the war stopped today, she estimated it would take five years to rebuild infrastructure and capacity for grain production and storage. “It’s not just buildings and facilities,” she said. “It’s also huge holes in fields and the like that will prevent efficient farming until the problems are corrected.”
