Once a smaller grain exporter than Ukraine, Russia’s grain exports are expected to be over 70% higher than Ukraine in crop year 2023-2024, after the full effects of the war are revealed.
“Wheatflation” is not a recognized word, but it is real, with potentially dire consequences felt in North Dakota because of Russia’s continued invasion of Ukraine.
That’s according to Sandro Steinbach, a North Dakota State University professor with the Department of Agriculture and Applied Economics. Steinbach is also the director of the Center for Agricultural Policy and Trade Studies at NDSU.
In a research paper published in August, Steinbach and other professors claim Russia’s invasion of Ukraine in February 2022 caused the commodity futures market to explode, leading to lower profit margins for farmers and higher costs to consumers, all while “many traders made a lot of cash,” Steinbach said.
The war has also put Russia ahead of Ukraine on grain exports. Before the war, Ukraine was a more significant exporter of grain than Russia, and was the world’s fourth largest exporter of corn and one of the world’s largest wheat exporters.
But that has changed. In crop year 2023-2024, after the full effects of the war are revealed, Russia’s exports are expected to be over 70% higher than Ukraine, the research paper reported, further suppressing Ukraine’s exports.
For some, there is money to be made, Steinbach said, but farmers in North Dakota are feeling the sting. Grocery shoppers are also facing a more than 60% jump in the price of bread, he said.
“Volatility will remain in the market with all the geopolitical events,” he said. “Yes, Russia/Ukraine will continue playing out for a long time. Climate issues in the south, drought events, a lot of factors are going on. Volatility is going to continue.”
North Dakota depends a lot on the export market, and the war in Ukraine may force local farmers to find buyers of grains and soybeans in countries like China, “less reliable and risky,” Steinbach added.
“On one hand, it’s an opportunity, and it can create stability, but it is less efficient,” he said. While the price of wheat for farmers locally has risen, there is not much hope for lower costs in the near future, he said.
“And if you run on low margins, we might be going back to the 1980s where we saw a lot of fluctuations with the markets. That’s something that needs to be considered as well,” Stenbach said.
Known as the 1980s farm crisis , farmers in North Dakota experienced a cost-price squeeze in the 1970s and 1980s, which collectively reached more than $195 billion, according to Sarah Vogel, an attorney and author of “the Farmer’s Lawyer.”
Making matters worse for the global economy, Russia recently pulled out of the Black Sea Grain Initiative, a European Union-backed plan that stabilized grain prices after the invasion began, which could have additional consequences and raise inflation even higher.
“The Western sanctions against Russia in response to the Russian invasion of Ukraine did not block grain exports from Russia, and therefore the Russian retreat from the Black Sea grain deal was nothing more than another form of Russian aggression towards Ukraine,” Steinbach wrote in his research paper.
Additionally, if trading ships on the Black Sea, which connects to the Mediterranean Sea, are halted by drone strikes or continued war, then about 27% of the global wheat exports from Russia and Ukraine combined could be halted, Stenibach said.
With “wheatflation,” it’s difficult for companies to raise prices in the middle of a crisis, but if you have a shortage justifying it, “you can increase prices across the board, which is good for a company. A useful way to increase margins,” Steinbach said.
And all of that translates badly for farmers, in Ukraine and in North Dakota, who will make the least amount of money growing and trading grains.
Much of it is a story of markups, Steinbach said. The average price for wheat for the Ukraine farmer is a quarter of what it used to be as transportation gets more expensive and wheat is left over, causing it to sell at a discount.
“So the guy who is losing out is the farmer in Ukraine,” said Steinbach, adding “anyone involved in trading these commodities made some good money.”
And while the war in Ukraine “made a big bang in the state of North Dakota,” as far as grain prices are concerned, Steinbach is also warning people to pay attention to additional events in the Black Sea.
“In North Dakota, we invest very little in social security, and those are decisions made by legislators in Bismarck,” he said. “If input prices go up, volatility is increasing, and at the same time financing costs are increasing, then a lot of farmers are building huge debt, then you have a potentially toxic mix.”
Source : InForum
