The Russian invasion of Ukraine will strain world grain supplies for months to come, driving up prices and inflation rates, said a panel of economists on Tuesday. “God forbid we have a weather problem this year,” said Dan Basse, head of AgResource Co., who described war in the Black Sea region as the greatest supply shock since World War I.
“This is the biggest supply shock that we can find, looking backwards at our data to 1914 … on a caloric basis,” he said, amounting to about 11 percent of the world’s annual consumption.
“A war that extends to June would be catastrophic for the spring crops” of corn, wheat and sunflowers, added Basse during on online forum organized by the Farm Foundation. “The question is, can they (Ukrainian farmers) get it in the ground?”
Private consultant William Liefert said Ukrainian grain production “will suffer from major harm” to the infrastructure for moving grain and obtaining seeds and other crop inputs. If Russia gains control of Black Sea ports, it could prevent Ukraine from exporting grain from this year’s harvest or grain held over from the 2021 crops. Economic sanctions were expected to push Russia into a recession.
Russia is the No. 1 wheat exporter in the world and Ukraine is No. 4 in corn. Wheat prices surged to record highs following the invasion. Corn and soybean prices also are up due to tightening supplies.
The uncertainties over the outcome of the invasion will keep grain prices high and exert inflationary pressure, said Basse. The U.S. inflation rate, already the highest in four decades at 7.9 percent, could peak at 8 or 9 percent in late summer, he said.
“I think all bets are off now” regarding inflation, said Joe Glauber, of the IFPRI think tank, because of questions over the volume of future grain production in Ukraine and Russia and how much of it would reach the world market.
“I know this isn’t necessarily the most popular suggestion but I think the (United States) should consider suspending these mandates” for biodiesel production and use, said Glauber. “To me, food sort of trumps that.”
The Renewable Fuel Standard guarantees biodiesel a share of the U.S. fuel market and a $1 a gallon tax credit is offered to producers. Forty percent of U.S. soybean oil is used in making biofuels. Soy oil is also used as an ingredient in foods ranging from baked goods to salad dressing. A bushel of soybeans yields 11 pounds of oil during processing.
“Our forecast for the year ahead is that combined maybe these two countries will do 20-22 million tonnes of wheat (exports),” said Basse. “Our estimate is that (Ukraine) is going to be down around 50 percent, or almost that, at 22 million tonnes” of corn production in 2022, with exports also down sharply.
India and Australia have huge wheat inventories, which partially will fill the gap created by war in Ukraine. But drought dragged down crop production in South America in recent months and the U.S. and Canadian wheat belts have been dry for months so grain supplies could remain tight, said Basse and Glauber.
One side effect potentially would be farm income at the highest level ever due to continued high commodity prices, said Basse. At the same time, demand for U.S. grains could press the transportation network to its limits. “The pipe to export facilities may not be big enough.”
To watch a video of the forum or look at the speakers’ slide decks, click here.