I might be a farmer and an agricultural economist, but I am a student of history. Back in the day when I was roaming the halls of the University of Guelph, I’d take a history course over almost anything else. I enjoy history; I think it’s very important partly because if we don’t know where we have been, we won’t have a clue on where we are going. Truly understanding our politics and our economics takes a good dose of history.
I say that this week because of the events in Ukraine, which have supported our grain markets over the last few weeks. As all of you know, Russian troops moved in to the Crimea region of Ukraine after their President fled the country after mass killing in Kiev. With the Ukraine as a major exporter of grain, it has sent reverberations throughout the grain complex. Call it an unexpected Tuesday. Not many of us saw it coming. However, when even a small black Swan shows up unexpected in a grain-exporting nation it’s all-good for the rest of us. That is, so far.
It is an accident of history that we are here today. In 1954 Nikolai Khrushchev, the leader of the Soviet Union ceded Crimea to the Ukraine. At that time it was all the Soviet Union and an argument could be made, what difference did it make? The Communist Party would rule this land at the barrel of the gun into perpetuity. Of course that all changed in 1991 when the Soviet Union was dissolved and Russia had to negotiate with Ukraine for the leasing of the Russian Black Sea fleet. 23 years later Russia has moved back in and who knows what happens next.
This is not some obscure Third World nation with a few tribal problems. This is Russia, one of the most powerful countries on earth shoving its weight around in its own neighborhood. To think that this problem will simply go away is folly at best. History tells us that. Needless to say, I chafed this past week when some media commentators had no appreciation for the history of this region. For the life of me, all they had to do was Google the Soviet Union.
I was especially astonished by the attitude of our own Canadian government. It is almost like we are jingoistic with our political rhetoric. They even flew the Ukrainian flag on Parliament Hill. Now, on March 16th, citizens will be voting on whether they want an autonomous Republic of Crimea within Russia or the Ukraine. The symbolism with Quebec is striking and with the Québec election called today, don’t be surprised if you hear about this during the election campaign. Sometimes freedom and liberty comes in strange ways and our own government might measure their words regarding Ukraine very shortly.
Meanwhile, according to my friend Elaine Kub in her latest column HRW has risen 14.5%, HRS 12.8% and SRW wheat 5.5% in this calendar year. Of course much of this has to do with the possible blockade of Ukrainian ports at the Sea of Asov where much Ukrainian wheat is loaded in small ships and floated down to Egypt and other end users.
This latest news from the Ukraine was on top of the noncommercial demand interests in the agricultural commodity market getting back into the game. All had been net long after being net short for so long leading up to the January USDA report. I have also been interested in many analysts talking about the situation “settling down” and putting grains back to sleep for a little while. When I read that, I think of the history in this area and think they really don’t get it. That may happen, but it is unlikely because if these big players start shooting, grain markets will never be the same.
This is history we’re talking about here! There are jealousies, prejudices, injustices, chicanery and a whole host of other ugly things that get in the way of good economics and good sense. This is how wars start and when they do start especially on the steps of Europe it can get ugly really fast. As farmers we need to keep that in our mind. We all hope there will be no bloodshed and cooler heads prevail but it doesn’t always happen that way on the Black Sea.
Keep in mind in our twitterized sound bite world; none of these outcomes may come quickly in nice neat packages. It might get messy over a period of weeks or months and if it does our world will become more dangerous and our markets much more volatile. This is the world we live in and our free markets will adjust accordingly. That goes for the grains too. Hither the snow ice and cold here and the war clouds overseas. Things could get messy real fast.