International Grain Council (IGC) reported that with Russia and Ukraine among the world's largest exporters of grains and oilseeds (and products), the ongoing conflict and resulting spike in agricultural commodity prices has fuelled concerns about potential food security risks, especially in import-dependent countries in Near East Asia and Africa.
1. Ukraine& Russia - Share of world exports (5-year average)
International Grain Council (IGC) reported that with Russia and Ukraine among the world's largest exporters of grains and oilseeds (and products), the ongoing conflict and resulting spike in agricultural commodity prices has fuelled concerns about potential food security risks, especially in import-dependent countries in Near East Asia and Africa. Given the fluid situation, the Council's supply and demand projections are especially tentative and are subject to significant uncertainty.
Immediate threats are mainly centred on the disruption to export flows. Commercial Black Sea port loadings are currently suspended in Ukraine. According to IGC’s report, although there are efforts to increase exports via railway routes through the country's western borders, overall volumes are likely to be limited. An export licencing system was recently introduced for wheat, maize and sunflowerseed oil, while shipments of barley, rye, oats and millet are currently banned. While the extent of infrastructure losses is unknown, potential damage to port facilities, railroads and storage silos could impact shipments over the longer term.
Most of Russia's Black Sea terminals were operational as of mid-March, but with some ongoing restrictions in the Azov Sea. While loadings recently resumed, volumes may be hampered by trade finance restrictions and additional ocean freight insurance requirements.
Additional exports from other origins, including India, the US, the EU and Brazil, will likely only partially offset lower Black Sea shipments over the remainder of the current season, according to the assessment in IGC’report. With high prices expected to ration demand, 2021/22 world wheat and maize trade is forecast to fall short of earlier predictions, while uncertainties prevail for 2022/23.
There are also significant downside risks to Ukraine's 2022/23 grain and oilseed crops, which could exacerbate longer-term export supply shortfalls. In addition to tight availabilities of fuel, farm inputs and labour, access to some fields is currently impossible, leading to mounting worries about farmers' ability to fertilise winter crops and plant spring varieties.
The conflict has heightened concerns about tight global fertiliser supply chains, stoked by restricted shipping operations to the region, as well as latest sanctions on Russia and Belarus, respectively two of the world's leading suppliers of nitrogenous and potash fertilisers. Soaring natural gas prices, a key feedstock for nitrogen fertiliser production, has also contributed to recent price gains. With elevated input prices and tight availabilities already a concern before the hostilities, the rising costs of production could impact upcoming acreage decisions and application rates, with possible implications for global yields and crop quality.
The crisis has already sparked a number of policy responses in other countries, heightening fears about rising protectionism and the potentially adverse consequences for food insecure nations. Additionally, broader market turmoil and downside risks to global economic growth could also affect supply and demand dynamics, while rising crude oil and commodity prices may further fuel inflationary pressure.
Mainly tied to an increase for maize (Ukraine, India and the EU), the forecast for world 2021/22 total grains (wheat and coarse grains) production is lifted by 3m t m/m (month-on-month), to 2,284m. Black Sea export disruptions and higher prices are projected to lead to some demand rationing. Consumption is therefore forecast 8m t lower than before, while the global trade figure (Jul/Jun) is cut by 9m, to 415m. Mainly reflecting an anticipated build-up of inventories in Ukraine, cumulative world ending stocks (aggregate of respective local marketing years) are now seen larger y/y (year-on-year). With much hinging on developments in the Black Sea region, supply and demand projections for 2022/23 are unusually tentative.
Tied to further downgrades for South American producers, the 2021/22 global soybean crop forecast is cut by 3m t, to 350m (-5% y/y). With tight carry-ins contributing to a reduction in supplies, prospects for utilization and stocks are trimmed, the latter by 1m t, to 42m, about one-fifth lower y/y. Given dwindling availabilities and elevated values, the trade figure is scaled back and is down y/y. Linked to anticipated supply responses in the three majors, harvested area could expand by 2% y/y in 2022/23.