Rural Voice Market Commentary – June 2022
by: Scott Krakar
The commodities that we often discuss continue to be influenced heavily by the developments of the war in the Ukraine, with the Russian invasion. The markets are experiencing large ranges within any given day, along with the perception of sentiment change according to various government announcements.
The United Nations put through a proposal to Russia, for Ukrainian grain to be exported to world markets. The need for this grain to foreign nations, most especially poorer nations of the world, is dire. The UN predicts that 1.4 billion people could be severely affected by the continuing conflict. A World Food Program official called the Black Sea area the “silver bullet when it comes to avoiding global famines, global hunger.”
The UN proposal was for Russia to allow safe passage of Ukrainian grain in exchange for the removal of western sanctions on fertilizer exports from Russia and the Russian puppet state Belarus. This proposal was of little effect to Russia, as they continue to ship fertilizer tariff free to much of the world regardless of western sanctions. So Russia rejected the proposal, stating that they would require much more than is currently proposed. Russia maintains that they can address the world food security issue, as they are set to harvest a potentially record crop. Russia has vast grain supplies of their own and would be happy to sell grain at high prices in order to “help world buyers”. While this conversation unfolded wheat markets rallied on the expectation that a grain shipment resumption from Ukraine would not be achieved.
From this Russian government assertion, the market was surprised only days later when Russia said that they would allow vessels to exit Ukrainian ports via “Humanitarian Corridors” that Russia would establish. Russia said they would be able to guarantee the safety of grain vessels. This assertion then aided in pushing market prices lower, as hopes that grain could flow allowing for Humanitarian shipments. But only a few days later Russia hit a major grain storage facility in a port town called Mykolaiv. Wheat markets again rallied sharply on news of this strike, and other grain facility attacks also. Market players are losing confidence that Russia would ever live up to their statement that they would allow vessels to exit via Ukrainian ports.
Well Russia and Belarus have a new idea to aid grain movement. Their proposal is to rail grain from Ukraine to Belarus’s ports on the Baltic sea, thereby avoiding ports blockaded in the Black sea. This proposal from Belarus (with the support of President Putin) is flatly rejected by Ukrainian officials as they view the plan with skepticism. Ukraine President Zelenskiy stated his disapproval of the plan as he stated, “We are not yet ready to follow this format and help our ‘friendly’ neighbors.” Their objection to ship on route to a Russian ally seems to be well justified. Not long ago a Russian wheat shipment was rejected in Egypt as it was deemed to be Ukrainian grain, stolen by Russian. The ship loaded from a Ukrainian port from the Russian controlled region of Ukraine. When questioned about the shipment it is reported that a Kremlin authority denied the accusation and did not know where the information came from. But US Secretary of State Antony Blinken confirmed that Russia is “pilfering” Ukraine’s grain exports for their own profit. Ukraine maintains that Russia is shipping their grain through Turkey and Syria. Russia and Turkey announced a plan to open Odesa for a safe corridor. But the Ukrainian government does not agree with this plan as credible as trust in Russia’s word is not possible. The Ukrainian foreign minister of foreign affairs stated, “Putin says he will not use trade routes to attack Odesa. This is the same Putin who told German Chancellor Scholz and French President Macron he would not attack Ukraine, days before launching a full-scale invasion of our country. We can not trust Putin, his words are empty.” But Turkish officials have reported that a lot of progress has been made in establishing trade routes from Ukrainian ports. Russia’s foreign minister Sergey Lavrov is currently scheduled to visit Turkey’s capital, for talks in creating the humanitarian corridors, as Russia still has blockades around these ports. Turkish media reports that Turkey’s navy would be willing to escort vessels to assist in reaching world markets.
Ukrainian growers have done well with seeding, in the areas where planting has been possible. Ukraine’s Agriculture Ministry reports that some of the more intense conflict areas will see plantings down 70%. While these heavy conflict areas will see reduced acreage, other areas within the country saw higher plantings than were expected. While planted acres have increased from prior expectations yields are still very uncertain with limited field inputs available to growers. And while planted acres are occurring, concerns and questions remain as to what harvested acres will be in many regions if the conflict continues.
Even if crops are harvested there are still fears that the grain may not make it to market. Ukraine had a pre war storage capacity of about 60 million metric tonnes. The most recent estimate is that greater than 20 mmt capacity is either destroyed or under Russian control. As a result plastic silo storage bags are being considered as a temporary alternate. But this method of storage is expensive and possibly subject to large storage loss.