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Ukraine and a Global Wheat Supply

Within hours of Russian military forces invading Ukraine on February 24, news outlets were abuzz with data and statistics relating to how much wheat is grown and exported from the Black Sea region and how many agriculture-dependent inputs are exported from Russia and Ukraine.  The Idaho Wheat Commission received several questions about the state of global wheat supplies and what Russia’s invasion of the resource-rich country would mean for the wheat industry here in Idaho.

Casey Chumrau, Idaho Wheat Commission Executive Director, and Britany Hurst Marchant, Idaho Wheat Commission Communications and Grower Education Manager, sat down to answer some of the most frequently asked questions on this topic.  What follows is the adapted transcript of our podcast episode that aired March 31.

We hear that Russia and Ukraine are referred to as “the breadbasket of the world”.  How much wheat really comes out of Russia and Ukraine?

In terms of production, about 10-15% of total global production comes out of that region.  However, it’s 25-30% of total exports.  Any country that is a net-importer is relying on other countries that have excess wheat to export, and 30% of that comes from those two countries.  It really is a significant portion of our world supply, and one of the things we’re concerned about is where that wheat goes and if there is going to be enough to supply those countries.  Also, countries supply their own people first and then export what is left over, so the 25-30% that we are talking about is just wheat for export, not what is used domestically by the people who live in Russia and Ukraine.

Where does the wheat go?

Most of the wheat from Russia and Ukraine is going to countries that are more price-sensitive and closer to food insecurity, like northern Africa and the Middle East.  Food security is one of the major concerns of this entire conflict – what is going to happen to the food supply in those countries if Russia and Ukraine are not available to provide exports, or if the prices are significantly higher to import from other countries, or if there isn’t enough wheat to make up for that lost 30%.  That is why so many people are watching this so closely and keep talking about Russia and Ukraine as the breadbasket of the world.

Is there a shortage of wheat?

The short answer is no, but it really is a complicated question.  Total global supply, according to estimates from USDA, are still much larger than global demand or global consumption.  However, much of that supply is wrapped up in countries that do not export, such as China, so that wheat is not available in the traditional export channels.  We’ve seen a lot of production issues the last few years, starting probably four years ago in Australia with severe drought that reduced production across that country, and then what we saw in the northern hemisphere this last year, including Idaho, with a drought and high temperatures that affected our production and reduced it by 30%.  We are still producing a lot of wheat in the world, but the location of that wheat makes it a little bit more difficult to make up for the unexpected in the export transportation and logistics with this conflict in Ukraine.

Is/was there enough seed for wheat to be planted this year?

Yes.  60% of Idaho’s wheat crop is winter wheat, so that seed was already in the ground before anything happened in Ukraine, so we know there was enough seed for that.  According to the U.S. National Agricultural Statistics Service (NASS), we did see a larger planted area in Idaho.  In terms of spring wheat, there was plenty of seed to go around, and NASS did predict that some farmers would choose to plant more spring wheat this year.

If there are disruptions in the supply, it will be a few months before we see the results?

Yes.  Most of the wheat that is exported out of the Black Sea, in this case Russia and Ukraine, tends to be exported just after harvest and then those exports start to trail off.  This part of the year, fortunately, is where there are fewer exports.  Of course, they’re still significant exports, but as they start to harvest, which is the same time as our harvest here, that’s when we will really start to see major disruptions, especially in the supply.  In Ukraine, most of the wheat has been planted because they are a winter wheat country, for the most part, but we don’t know that anybody is going to be there to harvest that crop in the coming months or what crop quality and field conditions will be that far down the road.

30% is a significant amount of wheat.  Is there a way for other wheat-producing countries in the world to make up the difference?

Certainly, the higher prices pushed some farmers to plant more wheat this year than they were planning to plant.  Maybe they were going to plant a different commodity or leave some fields fallow but decided to plant wheat instead of their usual rotation.  Of course, the winter wheat was planted in the fall, long before Russia invaded Ukraine.  We were seeing higher prices then as well, so we did see some farms shift rotations to winter wheat then, but it is likely that we will see higher planted acres to wheat here in Idaho.

And can that wheat be logistically transported to countries like Egypt and the Middle East; countries that would normally get their wheat out of the Black Sea region?

It has happened.  In the past, the United States has been a much larger supplier to that region of the world than current export data illustrates.  Not too long ago, Russia was a net importer of wheat, meaning they imported more wheat than they exported, so over the last several years the countries closer to Russia geographically have shifted more towards that Russian and Ukrainian wheat.  In Idaho we export about 50% of our wheat, so we do have the infrastructure and transportation through the river system to get our excess wheat to port very easily.  If we were to produce more here, that could possibly open more wheat in other parts of the country that could be exported as well.

There are about 22 million acres of crop land that are reserved in government conservation programs.  Is that available to be planted, or are they held back by government red tape?  What are the hurdles to utilizing that land for crop production?

The acres wrapped up in federal conservation programs are harder to unwind.  There are fields, especially here in Idaho, that are left fallow or unplanted on purpose to regenerate the nutrients in the soil and produce a better crop the following year.  Those fields, obviously, would be easier to plant outside their regular rotation.  A lot of those fields are covered with brush or perennial grasses that would need to be cleared, but it’s a lot easier today, with modern technology, to make that land available.  It is up to the government, however, to decide if they will take some acres out of their conservation reserve programs, not only to combat the need for more wheat, but also combat some of the higher prices.  

Since the airing of this episode, USDA Secretary Vilsack has said that the acres held out in conservation programs will not be released to be planted.

This really is a problem for all commodities, not just wheat.

Corn, soy, sunflower, and wheat are affected the most as far as exports by the war in Ukraine, but the prices have affected all commodities.  All the commodity prices are high now from rising input costs and logistical issues that have stemmed from the pandemic and are now being compounded by the war in Ukraine.

What are some of the things driving input costs?  Oil out of Russia, obviously, and fertilizer, but what else?

The input costs were rising significantly long before the war in Ukraine because of logistical issues that stem from the pandemic, lack of availability of some inputs and shortages of fertilizer.  Not necessarily that there’s a shortage of supply in the world, but we have seen problems getting those inputs from where they are to where they need to be.  Russia is also a larger producer of fertilizer, more than 40% of fertilizer components are produced in Russia, including natural gas, so that supply being cut off through sanctions is increasing input costs.

What do you say to people who say the wheat farmers are the ones setting the prices on wheat?

We always say that farmers are price takers not price makers.  The farmer never sets the price.  They go to their elevator and whatever the price is that day, they can decide to sell.  Luckily, for right now, wheat prices have been able to keep up with rising input costs, but that doesn’t mean that at the end of the year, when farmers pencil out how much it cost per acre to grow their wheat that they then get to say, ‘Okay, this is what we’re asking.’  There is a lot of risk right now for farmers.  If they decide to plant wheat, at the end of the year are they going to get the price that they need to cover the expense of growing the wheat?  If farmers want to lock in those prices now by selling on future contracts, will they be able to produce the yield to cover those contracts, considering the risk that we are still short water?  It’s great to see high prices, but it doesn’t really make the farmer’s job easier.  In fact, there’s a lot more risk and it’s much more challenging right now because of those input costs.

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