Russia’s invasion of Ukraine sets tone for higher priced Australian wheat 

Local grain growers have been handed the biggest challenge of their career – help fill the 34% grain supply gap wiped out in the Russian invasion of Ukraine

The Russian invasion of Ukraine has thrown global grain markets into short-term turmoil and the humanitarian repercussions have placed a world striving for greater co-operation back into the dark ages

World wheat markets have instantly lost access to the Black Sea region that currently accounts for 34% per cent of global wheat exports.

The current war footing Russia has adopted against the Ukraine has seen exports out of the region grind to an immediate halt

The Russian invasion of Ukraine has garnished condemnation from all clear conscious countries with good intent, and the trade sanctions imposed are expected to eventually cripple the communist regime in Russia. A country that has a history of taking care of its own internal business when the chips fall too low, in its own way.

Expect there to be large ramifications for global and Australian grown grains and oilseeds, particularly wheat, according to industry grain market specialists. 

The loss of access to all Black Sea wheat exports has not occurred in more than 100 years.

And this situation will continue due to blockages of shipping and the high cost or lack of availability of insurance for vessels. The longer the invasion of Ukraine continues, the bigger the disruption to the global market.

And the longer Ukraine resists being invaded by a foreign power ready to kill any citizen that resists, until the end to the incursion by Russia it will cost their own farmers and exporters dearly.

Even without heavy sanctions implemented on Russian wheat exports, it will cause long-term structural changes to wheat flows while the region is on an illegal occupational footing.

Global wheat prices have already risen 21% since the start of February this year and – in the very short term – prices are expected to rise another five to 10%  per cent before the end of February.

Should the invasion still be in play all the way into July 2022, when the Black Sea harvest starts, and sanctions on Russia are in full force, it is estimated global grain prices could rise another 61% from current levels.

On-farm grain storage prices set to explode

Local wheat exports will experience increased demand never experienced previously if Black Sea exports are unavailable.

This will mean a major lift in farmgate prices – and local growers are in position to take advantage of the full upward impact of a global price rise. This is due to the record 58.4 million tonnes grain harvest from the 2021-22 winter season just recently completed.

Local wheat marketers were expecting to export 24.5 million tonnes of wheat from a harvest of 34.4 million tonnes, so only limits on our stock availability will stop the export figure from exploding much higher as growers release on-farm supplies.

With local Kwinana Free-In-Store APW prices expected to rise from a position of A$425/tonne in the near term, to possible all-time record highs.  

And should Black Sea wheat be unavailable from the next harvest in July, representing 34% of the world stock, whether due to continued occupation of Ukraine or sanctions on Russian wheat exports, prices will remain significantly high.

In order for local wheat prices to more closely follow higher global prices, local growers will need to increase capacity from the next winter harvest to meet expected higher export orders.

How the grain trade flows

If the Turkish Straits, the only passageway between the Black Sea and the Mediterranean, remain open, there would still be a way for Russian growers to sell their grain.

They could sell their grain to allies such as Iran or China, who are expected to ignore western sanctions imposed on Russian exports, and their grain would still reach the world market under that scenario.

In the short term, this would not prevent prices from increasing quickly, but would fundamentally change global wheat flows if Russian grain from the next harvest was shipped through Iranian and Chinese suppliers.

Globally, the result of the Russian invasion could see both a change in trade flows and usage of wheat. Approximately 160 million metric tonnes of the world’s wheat (20%) is used for feed and this is where substitution is likely to occur to compensate for a potential 60 million metric tonnes of wheat exports annually no longer coming out of the Black Sea region.

China’s hunger for 50 million to 60 million metric tonnes of grain imports annually, largely for feed, could potentially shift from its current origins of South and North America and instead be supplied by Russia’s 45 to 50 million metric tonnes of grain export surplus.

History may not be repeated this time

The last time Black Sea wheat exports were blockaded, Russia was in an entirely different position. It was in October 1914, during World War 1 when the Ottoman empire stopped wheat supplies from Russia reaching its then allies, the UK and France.

With Russian supply denied to the world market, wholesale wheat prices rose 45% from October 1914 to February 1915. 

Apart from the fact Russia is facing a blockade from its former allies, there are two main differences this time around that indicate the impacts on wheat markets could be more severe if Russia does not get a chance to use the Iran or Chinese pipeline. 

Firstly, the world’s reliance on Black Sea wheat is now higher and, secondly, wheat stocks in other (non-Black Sea) export regions are far lower compared with the average they normally hold coming into this crisis.  

Further market impacts

Apart from wheat, the Russian invasion of Ukraine will also likely see disruptions to canola and feed markets, including barley. Ukraine is the third-largest exporter of canola in the world after Australia and Canada.

If the Russia invasion of Ukraine is successful, in the long-term Russian/Ukraine production will become the largest source and therefore exporters of sunflower seeds and sunflower oil in the world market,

On the stock feed side, Ukraine growers held a significant share at an estimated 17% of all global corn exports. 

At the cost of a few missiles and fuel for their tanks, the Russian invasion of Ukraine could result in a windfall for the invader. 

But there is also the matter of how easy it will be to wipe the blood of innocent civilians from their hands at a time the world is seeking co-operation and harmony like never before.

If that co-operation and harmony is seen as weakness by some aggressors, they should probably think again as people interested in a higher level of compassion to be shown by mankind don’t want to lose the achievements they have made, even if it means a fight like no other.