Source: IGC
Source: IGC

The conflict in the Black Sea region following Russia’s invasion of Ukraine has led to surging prices for grain and oilseeds, according to a report by the International Grains Council (IGC) released on 17 March.

Against the backdrop of the ongoing crisis in the region, the IGC Grains and Oilseeds Index (GOI), which represents average prices for grain and oilseed exporters, increased by 13% to reach a record level.

“The prices for grains and oilseeds are now the highest in the 21st century,” Alexander Karavaytsev, senior economist at the IGC said at an IGC press briefing on 24 March.

With Russia and Ukraine among the world's top exporters of grains and oilseeds (and their products), the ongoing crisis and resulting spike in agricultural commodity prices has fuelled concerns about potential food security risks, especially in import-dependant countries in Near East Asia and Africa, according to the IGC Grain Market report.

Due to the fluid situation in the region, the IGC stressed that its supply and demand projections were particularly tentative and were subject to significant uncertainty.

“Immediate threats are mainly centred on the disruption to export flows. Commercial Black Sea port loadings are currently suspended in Ukraine,” the IGC said. “Although there are efforts to increase exports via railway routes through the country's western borders, overall volumes are likely to be limited… While the extent of infrastructure losses is unknown, potential damage to port facilities, railroads and storage silos could impact shipments over the longer term,” the report said.

As of mid-March, most of Russia's Black Sea terminals were operational, but with some ongoing restrictions in the Azov Sea, according to the report.

“Additional exports from other origins, including Brazil, the European Union (EU), India and the USA, will likely only partially offset lower Black Sea shipments over the remainder of the current season,” the IGC said.

There were also significant downside risks to Ukraine's 2022/23 grain and oilseed crops, according to the report, which could exacerbate longer-term export supply shortfalls. In addition to tight availabilities of fuel, farm inputs and labour, access to some fields is currently impossible, leading to concern that farmers’ ability to fertilise winter crops and carry out planting.

“The 2021/22 season was an extremely good year for farmers in Ukraine, but these crops are already harvested and the uncertainty centres on the 2022/23 prospects,” IGC senior economist Nathan Kemp said at the press briefing. “It’s almost impossible to know at this point how things will play out.”

As Ukraine is a dominant force in the sunflowerseed world market, primarily for meal and oil, Kemp said the country’s sunflowerseed area could be at a particular risk of a sharp decline this year, especially with the main planting areas being in the eastern and southern regions which had been affected by the conflict.

The conflict has also heightened concerns about tight global fertiliser supply chains, increased by restricted shipping operations to the region and the latest sanctions on Russia and Belarus, respectively two of the world's leading suppliers of nitrogenous and potash fertilisers, according to the IGC.

“Soaring natural gas prices, a key feedstock for nitrogen fertiliser production, has also contributed to recent price gains. With elevated input prices and tight availabilities already a concern before the hostilities, the rising costs of production could impact upcoming acreage decisions and application rates, with possible implications for global yields and crop quality,” the report said.

The crisis has also sparked a number of policy responses in other countries, heightening fears about rising protectionism and the potentially adverse consequences for food-insecure nations, according to the report.

In the soyabean sector, following further downgrades for South American producers, the 2021/22 global soyabean crop forecast was reduced by 3M tonnes to 350m, a 5% year-on-year reduction.

With expanded use in the USA and China contrasting with reductions in South American soyabean processors, global consumption could fall for the first time in a decade, according to the report, while inventories are expected to tighten, led by a drop in the three major producers.

“Adverse hot weather in South America has been really detrimental for crops in the key exporters there and we are now expecting production in all countries involved in soyabeans in the region to fall, particularly in Brazil but also in Argentina and Paraguay and it is also having a detrimental effect on yields,” Darren Cooper, a senior economist at the IGC, said at the press briefing.

In the anticipation of reduced soyabean stocks from South America, buyers had been looking for alternative options, Cooper said, with the USA being the main player.

“Buyers such as China, Mexico and the EU are concerned and trying to squeeze as much as they can out of the USA,” he said.

The situation did not just affect the 2021/22 season, he said, but record commitments for the 2022/23 season, which starts on 1 August, had already been seen with China buying a lot of stocks from the USA.