Uncertainty will be the crucial fallout from Russia’s refusal to continue participating in the Black Sea Grain Initiative, say Extension marketing specialists. That agreement allowed Ukraine to export grain despite Moscow’s naval blockade.

“Russia pulling out of the grain deal highlights the vulnerability of grain supplies out of that critical region of the world and demonstrates how unstable the situation remains a year and a half into the war,” says Mark Welch, professor and Extension economist--grain marketing, Texas A&M AgriLife, College Station.

“The world has plenty of wheat,” says Kim Anderson, emeritus faculty, agricultural economics, Oklahoma State University, Stillwater. “The uncertainty brings risk. Russia can easily offset what’s not coming out of Ukraine. Russia has a lot of wheat to move and Ukraine was taking part of that market.”

Anderson said Russia “is destroying Odessa so Ukraine can’t export.”

Ukraine exports cut in half

“Since the war started, Ukraine’s wheat exports are down by almost half, from 19 million metric tons to 11 million metric tons,” Welch says. “Russia’s wheat exports are up from 33 million metric tons to 48 million metric tons. And Russian wheat of late has been the cheapest in the world.”

World wheat production estimates were down in the July WASDE, but still forecasts a record crop.

“Markets will adjust,” Welch says. “A major concern with the wheat market is uncertainty for what could happen with any kind of supply disruption in the Black Sea Region.

“Russia continues to dominate the world wheat market. The war has affected Ukraine’s ability to produce and export.” Production has declined from 33 million metric tons in 2021 to 17 million metric tons in 2023.

Welch and Anderson agree that Russia has plenty of wheat and can make up for what is not coming out of Ukraine.

“We’ve seen tremendous crops in Russia and exports have surged,” Welch says. “In 2021, before the invasion, Ukraine and Russia exported 52 million metric tons. Exports from the ‘23 crop total 58 million metric tons from the region, and Ukraine will export only half of what they exported before the invasion.

“The raw numbers show Russia can compensate for the loss from Ukraine. Exports out of the Black Sea area show 26% of world wheat exports in 2021 and 27% today.

“The question is, will that continue? Is that viable in the middle of a war?” Welch asks. Continued bombing of ports and other transportation disruptions adds to the uncertainty.

“How long can Ukraine continue to produce? Production was cut in half from ‘21 to ‘23. How can they plant, store and move grain? It’s amazing they can do what they have done.

“A 33-million metric ton crop has been cut to 17 million metric tons. If the world had that wheat back, it would fundamentally change supply and demand ratios.

Anderson and Welch say Russia’s big crops have compensated for losses in Ukraine but question whether that’s sustainable as the world relies more on Russia exports.

Risk moves market

Uncertainty has boosted the market. “If not for the risk factors, wheat prices would be 75 cents to $1 lower now,” Anderson said. “This is the fifth consecutive year of record production. The old record of 24.0 billion bushels last year was passed with 29.3 billion bushels this year.”

Anderson says Ukraine also produces a relatively large amount of corn, 25 million metric tons.

An underlying factor on the demand side, Anderson says, is increased demand for protein.

“The world demands more protein in diets, mostly pork but also beef,” he says. Meeting that demand requires more protein feed.

How does the ongoing conflict, Russia’s dominance in wheat markets, and the uncertainty affect farmers’ market plans?

“Farmers’ should look at production vulnerability,” Welch says. “Vulnerable markets can change quickly. Don’t let situations slip away when pricing opportunities exist.”

He says the broader market might look at higher prices because of the Black Sea access limitations and potential drought in the Corn Belt, longer term.

“Also, high prices this summer will affect production decisions. A short U.S. crop would push prices up, encourage more acreage in 2024.”

Longer term, the El Nino weather pattern tends to create more favorable conditions for wheat in the U.S. “Combining more favorable weather with higher prices bodes increased acreage and increased production for the 2024 wheat crop in the Southern Plains.

“Farmers need to be watchful and mindful of market movements,” Welch said.

Anderson points to another critical factor related to the Ukraine invasion.

“Russia is limited on the amount of fertilizer they can ship out, including phosphorus and potassium. That affects our cost of production.

“A critical pipeline goes through Ukraine and they are not letting it flow. That will keep fuel and fertilizer prices higher. Russia is able to move wheat and commodities, but some restrictions, monetary restraints, limit export of products that affect our production costs.”

Anderson says he was not surprised that Russia backed out of the trade agreement since Russia needs to export a lot of wheat.

“If the Russia/Ukraine war ends, world wheat prices world be expected to decline. For now, the market impact is mostly accounted for,” he says.