war in the Black Sea region could shock grain markets for several years | Your money


DENVER, March 31, 2022 (GLOBE NEWSWIRE) — Global grain markets have gone through a period of extreme price volatility following Russia’s military invasion of Ukraine, a situation that has reignited rising grain prices by 2020-21. The Black Sea region is a major producer and exporter of wheat, in addition to being a crucial hub for global trade in agricultural products.

Regardless of the end of the war, its impact on global grain trade will reverberate for some time as markets continually assess real and perceived grain supply shortages and readjust risk premia. According to a new report from CoBank’s Knowledge Exchange, the conflict will negatively affect global grain flows for at least two crop years, and likely longer.

“We expect a significant tightening in available stocks-to-use ratios for corn and wheat,” said Kenneth Scott Zuckerberg, chief grain and agricultural supply economist at CoBank. “Grain prices will remain high and volatile for the foreseeable future. It is an environment that will require US grain exporters and cooperatives to maintain high levels of capital and excess liquidity to fund operational and risk management activities.

Russia and Ukraine account for 14% of world wheat production and 29% of world wheat exports based on five-year averages. While the two nations produce just 4% of the world’s corn supply, they account for 17% of corn exports. The war comes at a particularly sensitive time for Ukraine given its normal planting schedule, posing a risk to the country’s agricultural production and grain exports.

Reduced current-year corn and wheat plantings in Ukraine, combined with a smaller winter wheat crop in July and August, are expected to tighten stock-on-hand-to-use ratios for both commodities, Zuckerberg added. . Excluding Ukraine and China due to its stockpiles from trade, CoBank expects global available stocks-to-use ratios to drop from 6.6% to 4.0% for corn and 15 .0% to 10.5% for wheat.

In the short term, India, Europe and Australia should be able to fill some of the deficits in Ukrainian wheat exports to the Middle East and North Africa (MENA). The United States, Brazil and Argentina will likely have the capacity to fill the gaps in corn export demand.

As grain prices rise, US elevators have the opportunity to make a profit on grain inventory purchased at lower cost. However, more capital will be required for the purchase, storage and hedging of cereals. Large multinational grain exporters and traders will also need higher levels of capital to finance their operations. They will also need to carefully analyze and manage counterparty credit risk given the likely increase in grain trading with emerging market players.

The war in Ukraine could serve as a wake-up call for food security in MENA countries, which depend on grain imports from Russia and Ukraine. If the MENA region were to diversify its grain export partners, North and South America, Europe and Australia would benefit.

Read the report, Ukraine Grain: Stocks Tight, Price Volatility Likely for Years.

About CoBank

CoBank is a $170 billion cooperative bank serving vital industries across rural America. The bank provides loans, leases, export financing and other financial services to agribusinesses and rural electricity, water and communications providers in all 50 states. The bank also provides wholesale loans and other financial services to affiliated agricultural credit associations serving more than 76,000 farmers, ranchers and other rural borrowers in 23 states nationwide.

CoBank is a member of the Farm Credit System, a national network of banks and retail lending associations licensed to serve the borrowing needs of agriculture, rural infrastructure and rural American communities. Based out of Denver, Colorado, CoBank serves customers from regional banking centers across the United States and has an international representative office in Singapore.

CoBank Corporate Communications 800-542-8072 [email protected]

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