Heading into mid-March, the coming weeks are a very critical spring plowing season in the Northern Hemisphere. What are the prospects for spring farming in Russia and Ukraine, which are big agricultural powers? Will it have an impact on global food prices in the future?
Wang Na, research director of agricultural products at Everbright Futures, told the first financial reporter that the factors that need to be considered in spring ploughing are fertilizer and manpower. "For Russia, which is rich in resources and is a major exporter of fertilizers to the international market, it is less affected." For Ukraine, she said, the new season sowing is not so optimistic, "on the one hand, the shortage of fertilizers has led to a decline in the use of fertilizers for spring ploughing." On the other hand, the situation in Ukraine has affected the situation in Ukraine, and the evacuation of refugees is expected to affect the sowing of land and the spring sowing caused by the shortage of manpower. ”
Fertilizer costs are soaring
According to public information, Russia is an important potash producer and exporter in the world. In 2020, Russia will produce about 13.5 million tons of potash fertilizer, accounting for about 20% of global potash production, and export about 10.84 million tons of potassium fertilizer, accounting for about 19% of the global potash trade.
Recently, due to the situation in Ukraine, the price of potash fertilizer has fluctuated. Wang Na said that considering that the potash exports of Russia and Belarus account for 40% of global potash exports, Brazil and India are the main demanders of fertilizers, and the impact of the situation in Russia and Ukraine on the rising cost of fertilizers cannot be ignored.
On the 14th local time, Andrei Melnichenko, a billionaire in Russia who operates fertilizer and coal business, said that unless the current situation can be stopped, the global food crisis is imminent, because fertilizer prices have soared so fast that many farmers can no longer afford it.
Mernychenko founded Eurochem, whose product line covers nitrogen fertilizers, phosphate fertilizers, compound fertilizers as well as organic chemicals and iron ore, is one of the largest fertilizer companies in Russia and one of the top five fertilizer companies in the world.
Earlier, on March 10, Russia's Ministry of Industry said it would ban the export of fertilizers to "unfriendly" countries and regions. Subsequently, global fertilizer prices began a new round of rise.
The latest data from the Food and Agriculture Organization of the United Nations (FAO) shows that urea prices, an important nitrogen fertilizer, have risen more than threefold in the past 12 months.
Svein Tore Holsether, president of fertilizer giant Yara, also recently said that the current record high price of natural gas has forced the group's ammonia and urea production in Europe to 45% of its original capacity.
Holst also said that the global food supply will feel a knock-on effect due to the reduced supply of these two basic fertilizers.
FAO said in a recent article on the situation in Ukraine that more than 50% of the fertilizer supply in some countries in Europe and Central Asia comes from Russia, and the supply shortage may continue until next year.
Wang Na gave an example to the first financial reporter that the rise in fertilizer costs has been reflected in the process of sowing corn in Brazil,000, so the Brazilian authorities have said that they will reduce the use of fertilizers.
Global food prices have repeatedly reached new highs
Before the situation in Ukraine, global food prices were already high. Global food prices hit record highs in February, FAO data showed. The FAO Food Price Index tracks monthly changes in international prices of the world's most traded food commodity. The index averaged 140.7 points in February, up nearly 4% from January. But it's also 24.1 percent higher than it was a year ago.
Among them, the greater impetus for the rise in food prices comes from outside food production, particularly in the energy, fertilizer and feed sectors. And, since the Food Price Index measures the average price for the entire month, the February readings incorporate only part of the market impact of the situation in Ukraine.
FAO said that in the past two years, the epidemic has brought many challenges to global food security, and the current situation has added a serious challenge to this.
According to FAO, Russia is the world's largest wheat exporter, with Ukraine in fifth place. Together, the two countries account for 19 percent of global barley supply, 14 percent of wheat and 4 percent of maize, accounting for more than one-third of global cereal exports. The two countries are also major suppliers of rapeseed, accounting for 52% of the world's sunflower oil export market.
Disruptions in the supply chain and logistics of grain and oilseed production in Ukraine and Russia, as well as restrictions on Russian exports, will have a significant impact on food security, FAO said. Some 50 countries currently rely on imports from Russia and Ukraine to secure 30 per cent or more of their wheat supplies, mostly least developed countries or low-income food-deficit countries in north Africa, Asia and the Near East. The food security situation is particularly dire for these countries.
FAO noted that given that agricultural activities in russia and Ukraine, two staple food commodity exporters, may be forced to disrupt, at a time when international food and agricultural prices are already high and volatile, it may seriously exacerbate global food insecurity. The conflict could also limit Ukraine's agricultural production and purchasing power, leading to increased food insecurity.
The grain harvest season will begin in June, but it is uncertain whether Ukrainian farmers will be able to harvest the crops and ship them to the market. Specifically, FAO said Ukraine's Black Sea ports had been closed. Even if the inland transport infrastructure is intact, the inability of the railway system to function will hinder the transport of food by rail. Ships could still pass through the Turkish Strait, through which large quantities of wheat and corn were transported. Rising insurance costs in the Black Sea region will drive up already high shipping costs, further affecting the cost of food imports. In addition, it is unclear whether storage and processing facilities will remain intact and whether manpower will be in place.
On the Russian side, Russia's Black Sea ports remain open for now and are not expected to have a major impact on agricultural production in the short term. However, FAO noted that financial sanctions against Russia have already devalued significantly, and if the sanctions continue to be imposed, productivity and growth are likely to be undermined and ultimately the cost of agricultural production will be further raised.
FAO also said that more than 35% of the world's population depends on wheat as a staple food, and the current conflict could lead to a sharp drop in wheat exports from Russia and Ukraine. It is unclear whether other exporters can fill this gap. Canada's wheat stock levels are already low, and the U.S., Argentina and other governments are expected to work to secure domestic wheat supplies, which could limit exports.
At the same time, the export prospects of sunflower oil and other types of vegetable oil remain uncertain. Major sunflower oil importers such as India, the European Union, Iran and Turkey will have to find other sources of supply or switch to other types of vegetable oils, which may have spillover effects on oils such as palm oil, soybean oil and rapeseed oil.
According to the U.S. Department of Agriculture (USDA), in 2021/22, Ukraine and Russia produced 33 million tons of sunflower seeds, accounting for about 60% of global sunflower production, of which Ukrainian sunflower production accounted for 28.6% of global production.
Xie Wen, senior analyst of medium and large futures, said that in the long run, due to the impact of the situation in Ukraine, the sown area of sunflower seeds in the new season in Ukraine may be greatly reduced, and subject to the high price of fertilizers and supply concerns, the yield of sunflower seeds in the new season in Ukraine has declined, and the yield of sunflower seeds in the new season in Ukraine has decreased significantly; the planting area and output of new season sunflower seeds in Russia may be normal; other countries may increase the production of sunflower seeds, but it is estimated that it is difficult to make up for the reduction of Ukrainian sunflower seed production. In 2022/23, global sunflower seed production is more likely to decrease sequentially.