Russia-Ukraine clash echoes through US farm belt
By Kevin G. Hall | McClatchy Washington Bureau | Published: April 18, 2014
WASHINGTON — America’s diplomats and generals aren’t alone in watching the unfolding conflict between Russia and neighboring Ukraine. The U.S. agriculture sector is following the faraway events closely for reasons of both opportunity and risk.
From rising global commodity prices to potential supply disruptions, there’s a lot at stake in the conflict for American farmers and producers.
Ukraine is the world’s third-largest corn exporter and sixth-largest wheat exporter. Russia is the world’s fifth-biggest wheat exporter — and a large buyer of U.S. corn and poultry products.
Since the early 2000s, both countries have garnered a bigger slice of the global market. What does or doesn’t happen there affects decision-making on American farms.
“This is a region where we have been facing stiff competition from Ukraine,” said Thomas Sleight, the president and CEO of the U.S. Grains Council, which develops markets for U.S.-grown corn and sorghum. “Longer term, everyone is waiting to see what effect credit availability will have on Ukrainian farmers’ willingness to plant and continue expanding their acreage of wheat and corn.”
Before the conflict, Ukrainian corn farmers had access to loans and were on a pace to eventually rival the U.S. corn belt as well as big producers such as Brazil. The loans now come with tougher conditions.
Farm-sector analysts had forecast lower corn acreage in the United States this year, but that was before tensions exploded after Russia annexed the Crimean peninsula. All eyes are now on the May corn planting in Ukraine.
“If things get worse there … that might send different (market) signals to U.S. producers,” said Sleight.
While Russia’s farm sector is an important generator of revenue, the Obama administration is unlikely to target it for economic sanctions.
“You don’t disturb what people are fed,” said Anders Aslund, a Russia expert at the Peterson Institute for International Economics, adding that “on top of that, U.S. companies are heavily involved.”
The world’s largest grain traders are U.S-based companies such as Bunge, Cargill and Archer Daniels Midland, said Aslund, meaning that “from a general political point of view it’s the least attractive thing you’d like to touch.”
The two countries are also an important growth market for John Deere tractors, pesticide manufacturers and high-tech seed companies such as Monsanto.
The standoff is already causing economic fallout.
Russia’s ruble and Ukraine’s hryvnia have sunk against the U.S. dollar by about 10 percent and 35 percent, respectively. That worries U.S. poultry producers, since Russia was the second-largest market for U.S.-raised chicken products last year, after Mexico. Poultry exports to Russia last year amounted to 304,000 tons, worth $309 million.
“As far as our members are concerned, it’s pretty much been business as usual, no threats. They’re importing product,” said Toby Moore, spokesman for the USA Poultry & Egg Export Council in Atlanta. “The bigger concern is the decline in the value of the ruble, which makes our products more expensive in Russia. But so far, so good.”
The most immediate impact is being felt in the futures market, where contracts are traded daily for future deliveries of wheat, corn and numerous other commodities. Wheat futures for July delivery jumped sharply this week at the Chicago Board of Trade on concerns about the broadening Russia-Ukraine conflict.
U.S. farmers get a windfall from the rising futures price. But disruption of the global supply is unwelcome and soaring prices mess up the broader planting cycle, since farmers rotate crops.
Prices would go much higher if the conflict escalates into warfare, which would likely thwart grains from reaching export markets.
“We’re afraid of a disruption,” said Jack Scoville, a senior market analyst and broker for the PRICE Futures Group in Chicago.
On Tuesday, traders fretted over unconfirmed rumors that a Russian plane had been shot down somewhere by someone.
“I have no idea if that is true or not. All I can tell you is we’re reacting,” Scoville said, underscoring the skittishness. “There is absolutely no confirmation. … The futures are reacting big time. But I haven’t seen a news article that something actually happened over there.”
The sagging currencies also raise the prospect that farmers in Russia and Ukraine might sit on harvested crops in hopes the currency will rebound and they can earn more. It could lead in months ahead to tighter global supplies and higher prices. That would be a windfall on top of one already enjoyed by U.S. farmers because of the rising price of contracts for future deliveries.
“That’s giving the farmer a higher return on what he’s selling,” said Steve Speck, a vice president of the Lansing Trade Group, a national grains trader based in Overland Park, Kan.