Global commodity markets are watching the unfolding war in Ukraine with trepidation amid broad expectations the violent conflict will result in shortages for anything from aluminium to zinc. One global market, grain, is particularly vulnerable, as Russia and Ukraine together account for a very significant part of global production of wheat and barley. Wheat prices already reached a ten-year high this week.
The global research team at Dutch Rabobank, well-known for its expertise on agricultural commodities, has recently published a number of studies on the potential impact of what it calls the “Ukraine Metacrisis”. The team closely looked at the consequences for commodity markets of the changing geopolitical landscape and also conducted historical analysis of the grain market at times of war. The research team also produced a podcast on volatility in grain markets.
Collectively, Ukraine and Russia account for approximately one third of global exports of wheat and barley. One fifth of the world’s corn exports comes from the two countries. When it comes to sunflower oil products, the two countries even account for a massive 75 percent of global exports. Sunflower oils however account for a small portion of vegetable oil markets, which are dominated by palm oil and soy oil.
Three factors
Three factors will eventually determine the impact of the Ukraine war on grain prices, Vito Martielli, Senior Analyst Grains & Oilseeds at Rabobank, told InvestmentOfficer.lu. The duration of the war, the impact of sanctions and whether Black Sea ports in the Ukraine remain open.
Martielli explained that June and July are particularly important months for Ukrainian grains because this is the harvest season for wheat and barley.. If Ukrainian farmers will not be able harvest in the summer, and the ports remain closed, exports to the world market will shrink.
The second factor is sanctions. “If they are imposed, who will then be the buyers? We do not know that yet,” said Martielli.
The status of Ukraine’s Black Sea ports near Odessa, known as the ‘Big Five’, and international shipping in the Black Sea is the third factor that will determine the impact on global grain markets.
Two scenarios
Based on these three factors, Rabobank has tabled two scenarios for the eventual outcome. The first scenario is based on war only. Under these conditions it forecasts a rise of about 20 percent in global grains prices.
The second Rabobank scenario considers a more protracted war that will have consequences also for the new crop season in Ukraine and that considers the impact of sanctions the West will impose on Russia. Under these circumstances, grains prices could double, said Martielli.
In last week’s trading, front month wheat futures on Euronext Matif commodities market in Paris, seen as the reference price for Europe, peaked at 336.75 euro per ton for March delivery, up 21 percent from 265.4 euro two weeks ago. By lunchtime Friday the March Matif wheat contract was trading at 309 euro per ton.
Russia and Ukraine together produced some 100 million tons of grains per year with an export value of 20 billion dollars. Sunflower products and rape seed exports averaged 21 million tons per year over the last the three years, representing export value of about 16 billion dollars.
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