What do Ukraine’s new wheat exports mean for prices and global hunger?
On Monday, the Razoni, laden with 26,000 metric tons of corn, was the first ship to head out of the port of Odessa in Ukraine since Russia’s invasion. It was the beginning of a 120-day deal brokered by Turkey and the United Nations to transport Ukraine’s grains from behind a Russian naval blockage. Ukraine, one of the world’s largest grain exporters, will begin shipping an estimated 18 million metric tons of grains that have been trapped in the country since Russia’s invasion in February.
The revived shipments have the potential to alleviate what experts have been calling a global food crisis in the making. There are 16 more full ships lined up to depart from Ukraine carrying corn, wheat, and sunflower seed and oil. As a huge development for Ukrainian farmers and the domestic economy, grain experts weigh in on what it means for the rest of the world.
The disruption of supplies of cereals, oilseeds and other commodities that are shipped along the Black Sea region has significantly increased food insecurity especially in countries in North Africa and the Middle East that are highly dependent on imports from Ukraine.
This deal has the capacity to double the monthly volume coming out of Ukraine, said Michael Magdovitz, a commodities analyst at Rabobank. “If this corridor proves even reasonably successful, it will go a long way to alleviating shortages of grains across Europe, the Middle East, Africa and Asia,” he said.
In a normal year, goods in Ukraine flow from north to south on heavily laden trucks to the plentiful ports in southern Ukraine. The war has meant the country’s goods are isolated and landlocked, trickling out at a slow rate of 1.5 million tons monthly, roughly a quarter of the country’s normal export capacity, Magdovitz said. He said right now Odessa ports have around 600,000 tons of grains ready to ship in 16 vessels — nearly half of its monthly land-route exports since the beginning of the war.
“We expect corn exports to more than double from 9 million tons to 18 to 22 million tons per year if the corridor is even mildly successful,” he said.
The world saw a reduction of grains to the tune of 27 million metric tons as a result of the drop in exports from both Russia and Ukraine because of the war, said Michael Swanson, Wells Fargo’s chief agricultural economist. Much of the grain that will be shipped out of Odessa in this “catch-up” effort will be corn for animal feed. This will take a while to be felt, he said.
“If it’s animal feed, with chickens and eggs the effect will be felt in a couple of months,” he said, adding that relief on the wheat side will be quicker. “Ukraine and Russia are much bigger wheat players than corn. Wheat will become flour much quicker for human consumption. It will be in a matter of a couple of weeks, at the longest” to be felt in North African and Middle Eastern nations.
Magdovitz said the additional 16 ships could head out Tuesday, going through Turkey and the Bosporus. Then they would go to North Africa and the Middle East and potentially Europe, voyages that should take less than a week, he said. The discharge rate (getting the goods off the vessels, into a waiting terminal or grain elevator, then loaded onto a truck or train wagon and shipped out to various feed mill) is “quite rapid.”
The success of the 120-day deal depends on shipping firms and insurers being tolerant of risk. The whole area is mined, and ships need an escort in and out. The biggest impediment is insurance, Magdovitz said, due “to the extremely high risk of missiles and other wartime activities.”
Wheat futures are currently $8 per bushel, gradually dropping over the past two months from their peak of $12.50 per bushel in May, Swanson said.
“More availability will help supply chains around the world, but there’s also the psychology. I’d say 10 percent is grain availability, but 90 percent is psychological,” he said about commodity grain prices, which have been sliding over the past two months. “The markets anticipated this happening.”
Because the United States imports very little grain from Russia and Ukraine, prices for food domestically won’t see any significant amelioration because of this deal, said Pete Levangie, chief executive of Bay State Milling, one of the largest family-owned millers in the United States.
“In terms of what the average consumer will feel with their weekly food budget, it won’t move the dial,” he said. “But you have to start somewhere and we need to resume some predictable order to the flow of commodities.”
He said that even before the Russia invasion of Ukraine, wheat prices were about 50 percent higher than normal. He said several things contributed. A number of years of climate volatility have made global production challenging, and the expected growth of renewable biodiesel has pushed farmers to planting less wheat and more soy, canola and corn.
“Analysts we work with say there’s 300 million new bushels of demand for oilseeds. If all of that was taken away from wheat acres, that would be a 10 percent loss of wheat acres, or about 13 pounds of wheat-based foods per person, per year in the U.S.,” he said. He added that demand is also high right now as steeper food prices push people to eating more wheat-based foods like pasta and bread, which are generally less expensive than meat or vegetables.
Still, experts say the deal is potentially huge for Ukrainian farmers because it builds confidence and boosts the likelihood of replanting.
“Ukraine exports about 5 percent of the world’s food,” Magdovitz said. “If you scar the economy, next year’s plantings could be worse than this year. This has the power to limit the scarring there — that’s the biggest impact of this deal.”
Tags: Ukraine, Russia, sunflower seed, corn, Turkey, export, commodities, Oil, oilseeds, wheat, Одесса, Black Sea, shipments, deal, United Nations, Cereals, global food crisis, ship, food insecurity, Razoni
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