Full impact of the Russian invasion on Ukraine’s farming industry now apparent

Approximately 1 million tonnes of grain were exported from that country last month. While this figure may seem impressive, this is down from the 15m tonne average in monthly export sales, which Ukraine would normally notch-up throughout the year.

Phelim Dolan, from the Irish grain import: export business, explained that the Ukrainian maize harvest usually takes place during the months of October and November, adding: “The war kicked-in towards the end of February, which meant there was little opportunity to offload the vast bulk of last year’s crops.

“So, most of last year’s grain is still sitting there.”

According to Dolan, logistics within Ukraine will improve as time passes.

“April was the first month that the authorities in the country had an opportunity to do something constructive, where the co-ordination of grain exports was concerned.

“This capacity will improve over the coming weeks. But the prospect of Ukraine becoming the force on world grain markets that it once was will not happen any time soon.”

But there are other pressures coming on world grain markets at the present time. China is reporting the worst winter wheat crops in many years.

“It’s very hard to know what’s fact and what’s fiction, where the Chinese market is concerned,” said Dolan.

“Current global estimates put wheat production figures to be slightly down on last year.

“It turned out that 2021 was a record year in terms of grain output around the world.”

He continued:“But demand has been increasing in tandem with this. China is a major producer of wheat. But that economy is facing into a number of head winds at the present time.

“These include the state of the country’s property market and the ongoing impact of Covid 19.”

Dolan further explained:“Where North America is concerned, it is too early to make any firm predictions, in terms of this year’s grain harvest. Parts of Texas, Oklahoma and Kansas are suffering drought conditions at the present time.

“But other parts of the country have received significant rainfall.

“We don’t need a poor harvest in any part of the world this year. Extremely high grain prices do not suit tillage farmers in that very general sense.

“For one thing, such a scenario only encourages high input costs.”

Grain prices remain at historically high levels, as supply pressures continue to drive sentiment.

There is a constant stream of news now available regarding crop planting, establishment and health figures. In tandem with production estimates, all of these projections are driving grain prices in the one direction – upwards.

It won’t come as a shock to learn that the war in Ukraine is having a huge influence on prices at the present time.

Coming closer to home, a number of local cereal growers sold their grain forward this year – and may well be regretting this move.

However, the prospect of ever increasing prices for the grain that they have in store will ease this situation to some extent.

Dolan referenced the state of world cereal markets prior to the outbreak of hostilities in Ukraine. He confirmed that bullish trends were already becoming apparent at that stage, adding:“Demand and supply had been tightening from 2021 into 2022.

“But when the Russians invaded Ukraine on February 24, the market really took off at that stage.

“Prior to that the market had been nervous, given the prospect of some form of action in Ukraine.”

According to Dolan, the market for wheat strengthened by £20/t in the days directly prior to the invasion.

“The demand: supply situation as already pretty tight at that stage in any event,” he explained.

“And the market was extremely nervous of any event that would increase prices.

“Ukraine is not the largest producer of grains and oilseeds in the absolute sense of the term. But what makes is so important in a global context is the fact that the country exports such a high proportion of the its cereal output.”

Dolan continued:“Maize and wheat exports are very large contributors to the Ukrainian economy. Barley exports from the country are also significant.

“For the most part, these grains are exported to the Middle East and North Africa, regions that have a tremendous import demand for these products.

“So any diminution in Ukraine’s ability to export grain has a major ripple effect around the world.”

Meanwhile, the port of Constanta, on Romania’s Black Sea post has increasingly been used as an export point for grain from across Eastern Europe.

Kildare native, Jim McCarthy, who currently farms in Romania has confirmed that small tonnages of cereal from Ukraine are also making their way to Constanta at the present time.

He explained:“The Ukrainian government is slowly lifting its grain export ban. Constants is Romania’ most southerly port on the Black Sea.

“It is fast becoming the most important embarkation point for grains produced in Eastern Europe.

“But the problem now arising relates to the logistics of dealing with the additional grain that may be coming into the port from Ukraine.

“Adding to this is the fact growing cereal production base within Romania itself.”

McCarthy believes that Constanta has the potential to rival Rotterdam as one of the world’s leading grain trading centres.

“Its proximity to the Suez Canal makes it, potentially, very attractive for buyers in Asia,” he further explained.

McCarthy provided a spring crops’ update for Romania and Ukraine courtesy of his contribution to the most recent Tillage Edge podcast.

There is now a general acceptance that grain and oilseed production in Ukraine will drop-off significantly while the current conflict in the country continues.

McCarthy confirmed that little or no spring planting has taken place in occupied areas of Ukraine.

“It really is very unpleasant,” he said.

“There is also evidence to the effect that Russia is commandeering garuin and vegetables grown in occupied areas of Ukraine for their own use.

“This is tantamount to a war crime.”

McCarthy estimates that approximately 10% of Ukraine’s cropping land has been affected in this way.

He added:“In the remaining part of Ukraine, the general belief is that 70% of the available land will be seeded.

“But the major concern now is diesel availability. There was enough seed available to meet growers’ needs and enough diesel available to allow crops to be planted out.

“But the big concern now is the availability of fuel over the coming weeks and months.

“Traditionally, 60% of Ukraine’s diesel came from either Russia or Belarus. This will not now be happening.

“Russia is currently destroying all the infrastructure in Ukraine: rail lines, and roads.

“It has been estimated that Ukrainian farmers will need 25,000 articulated truck loads of fuel brought into the country, in order to complete the 2022 harvest.”

On the ground in Ukraine, farmers have cut back significantly on the acreage of grain maize and soya they are growing this year.

“The beet issue reflects farmers’ fears of not being able to get their crops processed,” confirmed McCarthy.

“Soya has also been re-introduced this year across Ukraine to a significant extent,” said McCarthy.

“Across the board, farmers there are changing their rotational practises in response to the continuing unrest in the country.”

There is now general agreement that the overall tonnages of grain and oilseeds exported by Ukraine in 2022 will be well back on previous years.

According to McCarthy the weather will also be a key factor in determining crop yields in both Ukraine and Romania.

“There are some excellent crops of maize growing in both countries at the present time. But summer rain will be required to push these crops forward,” he explained.

“It has been exceptionally dry over recent weeks and there is very little stored water available.

“In an ideal world 600mm of rain will be required to grow a good crop of maize. However, the average rainfall expected over the coming summer months will be in region of 300mm.”

On the back of reduced yields across most of Eastern Europe, McCarthy is expecting feed wheat and maize prices to be very strong later this year. The production capacity just isn’t there.

With regard to his own farming operation in Romania, McCarthy is reporting exceptional germination rates across all his crops. Where sugar beet is concerned, plant numbers are averaging 40,000/ha.

“Growing conditions have also been good, which mean that our crops have received the best start possible,” McCarthy continued.

“Very often Romania can be predisposed to very strong winds in late April. Thankfully, this has not been the case in 2022.

“We planted out our soybean crops at the beginning of April. These have all emerged now and are looking really well.

“Grain maize is a big driver for the business. This year we were able to plant out 4,500ha of crops in 14 days.

“Sunflowers were the last crop to be planted out this year. This happened after Easter. Sunflower seeds germinate very quickly: they are a very vibrant crop.”

All of these factors may well have a major impact on international meat markets over the coming months.

Writing in the most recent issue of the International Meat Secretariat (IMS) Newsletter, Rupert Claxton – the Meat and Livestock Director of the international consultancy and research firm Gíra – confirmed that the war between Russia and Ukraine came at a point when global commodity supply balances were already tight.

He added:“Demand was starting to recover from two years of Covid-19, oil prices were increasing, and OPEC was slowly working to readjust production to maintain balance.

“The war caused a price boom to US$128/barrel, before settling back around US$105/barrel, which is still very high!

“In the livestock sector feed costs were already high, reflecting strong demand, concerns over the 2022/23 harvest outlook, and low stocks globally.

“For the global meat system, the war between Russia and the Ukraine is primarily an issue for feed supply and its dramatic global price impact, rather than that of a disrupted Ukrainian meat supply.”

According to Claxton, Ukraine has traditionally been a significant exporter of chicken. In 2020 its combined exports to the Middle East and North Africa (MENA), Africa and the EU-27 totalled 431,086 tonnes per week.

However, volumes will likely be substituted by Brazil and others without too much market disruption.

Claxton went on to point out that Russia continues to blockade Ukraine’s ports while grain export infrastructure is badly damaged.

He further explained:“Significant exports in the second half of 2022 are unlikely.”

So the question becomes: how much of the combined pre-war export volume of 55Mt of grain and oilseed can they produce, let alone export?

The Gíra representative believes that other sources will not quickly fill these supply gaps. South American first quarter 2022 harvest yields have been disappointing, and whilst EU crops have overwintered well, there are cost and availability challenges for agrochemicals.

The US wheat crop is already drought-stressed and the Mid-West outlook is dry. China has had two disappointing harvests in a row, which have been unable to meet the needs of rapidly rising industrial feed demand: hence the surge in corn and wheat imports, in addition to its vast soybean imports. Record high global fertiliser prices suggest that farmers will apply less in 2022 growing season and maybe in 2023.

“Lower yields seem inevitable, at higher costs,” Claxton concluded.