Unrest threatens agriculture

Tensions in Ukraine lifted wheat futures March 3 and provided modest support for corn.


Given the fluid situation I won’t t speculate much on how Russia’s takeover of the Crimean peninsula will affect Ukraine’s grain exports.


However, it’s worth noting that Ukraine, with its rich black soil, is already a major grain exporter and has plans to expand further. 


Its wheat production is most concentrated in the south and the east, which tend to have a larger number of Russian speakers. Corn production is focused in central areas.


The U.S. Department of Agriculture forecasts that Ukraine will export 10 million tonnes of wheat in 2013-14, or six percent of global shipments.


Ukraine has quickly become the world’s third largest corn exporter, behind the United States and Brazil. Production rose from 3.85 million tonnes and almost no exports in 2000 to a crop of 30.9 million tonnes and 18.5 million tonnes of exports this year, or 16 percent of global exports.


Exports go out through ice-free Black Sea ports.


The Food and Agriculture Organization says agriculture accounted for 8.2 percent of gross domestic product in 2010 and 14.5 percent of exports. Because of its large contribution to trade, the country has a strong interest in keeping grain exports flowing and farmers on track in managing their crops.


Ukraine’s currency, the hryvnia, is down 16 percent against the U.S. dollar since the start of the year. 


That lifts the local price of grain but makes imported inputs such as fertilizer more expensive. The unrest will also likely make it more difficult for farmers to obtain credit.


Indeed, lack of credit and investment are major deterrents to realizing Ukraine’s agricultural potential.


China has targeted Ukraine as a potential supplier. It gave Ukraine a $3 billion loan in 2012 to improve its agricultural infrastructure in return for three million tonnes of corn a year at market prices set at the time of export.


Some media report that the loan deal is now floundering, but others say the problems are overblown.


Most of Ukraine’s winter wheat survived in good shape. Spring seeding has just begun in some southern areas, and its progress will depend on whether the political situation continues to deteriorate.


“If there is a risk that a tank appears in your field, you would think twice before you start sowing,” a Russian trader told Reuters.