Markets respond to unrest in Ukraine

Events in Ukraine spread fear in markets pushing prices upward ahead of the March crop reports.

THE situation in Ukraine has continued to be the focus of concern this week as the world waited for Russia’s next move. Contrary to what is believed by the rest of the world, Russia continued to deny that it had troops occupying the Crimean Peninsula. Yesterday, the parliament of Crimean Peninsula decided it would split from Ukraine to become part of Russia. A referendum was scheduled to be held March 16 where local voters could decide whether to join Russia or remain somewhat autonomous as part of the Ukraine.      

With the situation far from over, Rice Dairy market analyst Jerry Gidel said that the initial concerns for the agriculture industry involved wheat and corn export shipments from various Black Sea ports being delayed or canceled because shipping companies did not want to put their shipping vessels at risk. Secondly, he said others voiced concerns about spring planting and production problems, but doesn’t expect that these issues will occur unless this situation escalates sharply in the next 6-8 weeks.

“Events in Ukraine will have a direct impact on U.S. farmers in the international marketplace,” said Tom Sleight, U.S. Grains Council (USGC) president and chief executive officer. “The Council is a global organization and has staff and consultants around the world representing the best interest of the U.S. grain trade.”

“Ports are open and vessels are loading but shipments are becoming increasingly difficult,” reported Cary Sifferath, USGC regional director for the Middle East and Africa. “We’re seeing farmers holding grain to hedge against a devaluing currency. We hope for a peaceful and speedy resolution of Ukraine’s crisis, but the instability is creating opportunities for additional U.S. exports to North Africa, the Middle East, and China.”

Ukraine reported a record corn harvest in the 2013/2014 marketing year of more than 30.9 million metric tons (1.2 billion bushels). The USDA projected in February that exports for the year will reach 18.5 million tons (728 million bushels).

Sifferath estimated that approximately 15 million tons (591 million bushels) of this total had already been shipped, leaving approximately 3.5 million tons (138 million bushels) in projected exports between now and June. It was uncertain how this would be affected by the turmoil.

Ukraine’s winter wheat and barley were planted before the onset of the crisis, but corn planting is due to start in the next 30 to 45 days, and credit availability may become an issue.

“The economic instability will affect Ukrainian farmers looking to plant this year’s crop,” Sleight said. “Ukraine is in a tough spot financially, and planting season is just around the corner. The Council will continue to monitor this situation closely.”

"I don't see major problems with the sowing (campaign) as of now," Ihor Shvaika, Ukraine's agriculture minister, recently told Reuters. "We will do everything so the area for spring grains does not fall and it will not fall."

Some traders had been reluctant to enter into new contracts while tensions between Ukraine and Russia escalated, Shvaika said. "We are doing everything to resume the process," he added.

"Increases in Ukrainian corn prices and political uncertainty should keep U.S. corn competitive into North African markets including Egypt, Morocco, Algeria and Tunisia," Sifferath said. "We wish the Ukrainians a peaceful solution to their political crisis, but in the meantime U.S. price, quality and especially reliability are critical factors."

Archer Daniels Midland which has port facilities, an inland grain elevator system, and an oilseed processing plant, said in a statement this week that they had not seen any significant impact to business and continue to monitor the situation. “Our primary concern is the safety of our employees, all of whom are safe,” noted the statement.

In response to the unfolding events, grain markets steadily increased through this week as traders feared tension in the region could escalate.

Nearby corn prices on Monday closed at $4.64/bu. and by Thursday, had climbed to $4.8575/bu. It was the same story for soybeans and wheat, as well. Monday nearby soybean prices closed at $14.0725/bu. and by Thursday’s close, prices had reached $14.375. Wheat markets opened last week up 11 cents at $6.10 from the previous Friday’s close and by Thursday’s close, the price was significantly higher at $6.415. 

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