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Russia-Ukraine: Impact of escalating tensions on global grains and fertilizer markets
02 February 2022Allan PickettMr. Hughes Paul
What's at stake for food and agriculture
commodities?
In recent years, Russia and Ukraine have become emerging
agricultural powerhouses. Today, they account for nearly 30% of
world wheat exports, 30% of world trade of barley exports and the
command a 15% market share of vegetable oils. To say these two
countries have become an integral part of global agricultural and
food commodities trade is no overstatement.
Any disruption in the short run is a matter of whether world
trade will be impacted. More than 90% of all Ukrainian food and ag
commodity exports pass through sothuern Ukraine, and any seizing or
fighting around these ports has the potential to be tremendously
disruptive.
On the Russian side, the risk to world trade is not from
military incursion but from economic sanctions. In in response to
military action, Russia is locked out of the SWIFT banking system,
the electronic "plumbing" that facilitates nearly all international
wire transfers, Russia could still export but would be unable to
receive payment. Presumably, exports will grind to a halt in this
essential origin if this occurs.
Risks to the world of fertilizers
Russia is a significant global supplier of fertilizer. If
sanctions are imposed, fertilizer exports are likely to be severely
impacted as financial sanctions limit the ability of Russian
companies to trade in US dollars.
Global fertilizer prices are currently at their highest levels
since the 2008 commodity bubble and subsequent financial crash. Any
sanctions on Russian fertilizers will ensure the supply balance
across most products remains tight for longer than would otherwise
be the case, implying that fertilizer prices remain at elevated
levels for longer.
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Dec 28
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