With Spring Sowing Area Halved by War, Disruptions in Ukrainian Grain Supply Cascade

By Ben Merrell

As the war in Ukraine continues to rage more than one month after Russia’s invasion, the implications of this conflict on global trade, commodities markets, and world hunger continue to mount. As the 1^st and 4^th largest wheat exporters by volume (2021/2022), Russia and Ukraine are critical suppliers of the staple cereal, combined representing approximately a quarter of global supply. Ukraine is also the world’s 4^th largest exporter of corn. While the scale of disruption to Ukrainian and Russian agriculture and trading is not yet clear, global wheat prices have increased by ~ 26% since February 23^rd, the day before the invasion, reflecting a sharp reduction in supply.

 

In a typical year late February – March coincides with the Ukrainian spring sowing season for corn and other cereals. However, earlier this month the Ukrainian agriculture minister Roman Leshchenko revised the government projections for total sowing area down by half. Fuel shortages, displacement of essential workers, and the need to support internal refugees are all factors which are contributing to a significant curtailment of food exports from Ukraine. On top of these challenges, shipping into and out of Ukraine’s black sea ports remains impossible. Since the start of the conflict several vessels in the black sea have been struck by bombs or naval mines presenting a grave danger to seafarers who are trapped in the area. Stockpiles of Ukrainian corn are still being shipped west by rail however, the flow of grain is constrained by existing infrastructure.

The late summer / early autumn harvest season for Ukraine’s winter wheat is rapidly approaching. If the conflict is protracted until then there is the possibility for further disruptions with the grain harvest and export capacity. This kind of disruption risks setting off a humanitarian crisis due to the expected increase in already sky-high food prices. Much of Ukraine’s grain is shipped to countries in the Middle East and Africa who are sure to be seriously affected by the increase in prices.

Beyond grain, shortages of fertilizer and fuel due to the conflict risk exacerbating the situation further. Russia and Belarus are responsible for 40% of the global supply of Potash, a key ingredient in fertilizer, exports of which have been reduced by shipping delays and economic sanctions. As the price of fertilizer and fuel increases, farmers worldwide may elect to reduce the area under cultivation and further curtail the global supply of food. Overall exports from Russia have declined by 25% compared with the pre-war 2022 average primarily due to economic sanctions.

The situation for shipowners and charterers remains relatively unchanged since the beginning of the conflict; exports by sea from Ukraine are still prevented and sanctions are impacting trade with Russia. However, what has become apparent is that interested parties must prepare for a potentially prolonged disruption, not just affecting trade with Ukraine and Russia, but the global market as the effects from the conflict continue to ripple outwards. A swift end to the conflict, while unlikely, appears to be the only hope for avoiding a global food crisis.

True North Marine is a trusted partner for dry bulk charterers and shipowners. If you’d like to learn more about how we can help your business cope with unexpected shocks we invite you to contact us.