Ukraine/Russia: No Winners, Only Tough Realities

It seems like a long time ago now, but when you really think about it March of 2021 isn’t that far away. It was in March of 2021 where I was invited to speak on the global grain markets from a Canadian perspective in Kiev Ukraine.  Your loyal scribe had developed a relationship with a Ukrainian grain trader who invited me to make a virtual presentation.  I had done one such virtual presentation before in Brazil, so the optics of it weren’t that daunting. However, when you are speaking about grain in a totally different culture, the learning curve is always an interesting one.

Looking back at that now is almost surreal especially when you consider what happened a year ago this past week when Russia launched their invasion of Ukraine.  When the missiles were launched, and the guns started firing all bets were off in the Black Sea grain market and by extension so were they for us. In the wheat market alone, we saw huge spikes in price putting cash wheat priced in Ontario off the combine at $15 a bushel last summer. That day in March of 2021 when I was speaking to Ukrainians, I couldn’t have imagined what was ahead.

Before we go on let’s do a little bit of rewind on my thoughts. I have often said that to truly understand Black Sea grain you need to understand the history of the region. That history is reflected in Soviet Union history which goes back to 1917.  During this time there’s been great conflict in the land both in World War One and World War Two.  There’s been all kinds of ethnic cleansing and tyranny.  Trust died and hate flourished.  So, I have always said that you must know about this history before you can judge grain movement in this area of the world.  Now, post 2023, it’s even more so.

For more background on this conflict a year out, read DTN’s Ag Policy Editor Chris Clayton’s latest piece, entitled “One Year into Russia’s War on Ukraine”.  Chris does a great job quoting many different sources on the greater risks that Ukrainian farmers are facing based on the Russian invasion which is a year old.

Let me quote one paragraph from the article.

“The most current estimates show Ukrainian farmers have suffered nearly $7 billion in losses, including 84,200 pieces of destroyed or stolen machinery. An estimated 10 million metric tons (mmt) of grain-storage capacity has been destroyed. Other significant parts of Ukrainian agriculture are now in Russian-held territory.” (DTN Ag Policy Editor Chris Clayton)

Ukrainian farmers losing $7 billion is incredible and in the rest of the article Chris talks about some of the water reservoirs being drained in Ukraine and the infrastructure being compromised heavily. This is happening at the same time where Ukrainian farmers have a shortage of capital as well as seed chemicals and other farm inputs. This is an aside to the even bigger transportation costs to ship grain through other parts of Europe. In short, it’s a terrible situation that eastern Canadian farmers could hardly even imagine happening. It surely will continue to affect grain and oilseeds coming out in this region of the world for months and years to come.

At the time governments around the world asked their farmers to ramp up crop production. We now know that Australia had a good crop, and we know that our Brazilian friends continue to expand production. At the same time the American government responded by opening up 20 million acres of their conservation reserve program as well as a $500 million infusion into domestic fertilizer production.  There were also changes in US crop insurance programs to help boost production. However, we all know that last year was a good year for American crops but far from record levels.  Of course, we also know there was a successful attempt by the UN to broker a grain transportation agreement between Russia, Ukraine and Turkey. The discussion for renewal of this agreement continues in a war zone.

I was highly critical of the Canadian government’s response to increase agricultural production. Our government responded to the war by slapping fertilizer tariffs on Russia, but they made Canadian farmers pay them. At the same time, it had no effect on the Russians.  Then several of our government cabinet ministers had the audacity to say Canadian farmers could increase grain production.  It made no sense, and it continues to hinder farmers today. Simply put, the Canadian federal government could have done so much better to enhance food production.  From an agricultural economist perspective, it was embarrassing.

However, remember, I don’t do politics here, only agricultural economics. As we move forward in 2023 the war in Ukraine continues and as I’ve said in these pages many times it’s far from over and it could become a lot messier.  I am not a war hawk; in fact, I’ve always been against NATO expansion. The reality on the ground for Canadian farmers is we’ll have every intention to do the best job we can this year.  We’ve got all the tools unlike our Ukrainian friends, and we’ve even got the new crop prices to make it a success. The war in Ukraine indirectly continues to add stimulus to our agricultural commodity prices.

I hope to present again on the grain markets someday in Kiev.  However, that seems so far away. There are no winners here, there are only tough realities.   I trust nobody here will take that for granted when planters start to roll.